Company covenant

01 June 2010

Issue: 4257 / Categories: Forum & Feedback

A medium-sized non-resident company owns a portfolio of properties in the UK and incurred a loan to purchase them. A breach in the banking covenant means professional fees have been incurred

A non-resident (medium-sized) company owns a portfolio of UK properties. A non-resident company tax return is required under self assessment every year.

There is a loan to purchase the properties and the interest payable is allowable. In 2004/05 professional fees in respect of obtaining the loan were treated as allowable against rental income and have been spread over the term of the loan (in line with the accounting treatment under FRS4).

Due to the downturn in the property market there is a breach of the bank’s ‘loan to value’ covenant. Consequently the company has incurred very significant professional fees including legal advice valuations fees in respect of negotiating with the banks etc.

IR150 states that ‘costs you incur in obtaining loan finance for your rental business are generally deductible in computing rental business profits provided they relate wholly and exclusively to property you let...

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