Hi
BIM45820 - Specific deductions - incidental costs of loan finance: exclusions from relief - HMRC internal manual - Premiums and break charges states 'Some loans include terms under which the interest charged is at a lower annual rate in the early years of the term and increases later.
A borrower who wishes to repay early will have to pay the lender a charge (called break charges in this guidance).
Whether break charges are incidental costs of obtaining loan finance will depend on the facts of the particular arrangement.
If such charges amount to a premium, they are expressly disallowed.
Then under ‘What is the nature of the break payment’ states 'The majority of break payments that take the form of a penalty for early redemption of the loan will represent genuine compensation to the lender.
In such circumstances the break payment will not amount to a premium and will therefore attract relief as incidental costs of raising loan finance. If the circumstances of your early redemption charges fall into this second category and don't amount to a premium then they would be an allowable expense.
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