As a landlord, you’ll have to pay tax on your profits – quite a bit of it, and (in most cases) more than you would have done a few years ago. We’re here to help you understand how to claim against your rental income profits and therefore reduce the amount of tax that you owe. As an investor, you have “allowable expenses” and these can be deducted as long as they are, in the words of the gov.com website ‘ wholly and exclusively for the purposes of renting out the property‘
Claiming allowable expenses as a landlord is one way of making sure you’re paying what’s fair. Here’s how and what you can claim.
What can I claim for as a buy-to-let investor?
Here’s what you can claim as a landlord in the UK:
- general maintenance and repairs to the property, but not improvements (such as replacing a laminate kitchen worktop with a granite worktop)
- water rates, council tax, gas and electricity, ground rents and service charges, direct costs such as phone calls
- insurance – such as landlords’ policies for buildings, contents and public liability costs of services, including the wages of gardeners and cleaners
- letting agent fees and management fees, legal fees for lets of a year or less, or for renewing a lease for less than 50 years, accountant’s fees
- stationery and advertising for new tenants, vehicle running costs (only the proportion used for your rental business) including mileage and rate deductions for business motoring costs.
How does an allowable expense affect your tax bill?
Most landlords will file their tax return under the ‘cash basis’. This means your tax return should only include income that’s been received during the tax year, and expenses that have been paid during that time.
What can I not claim as an allowable expense?
Some expenses are not deemed to be allowable. These include:
- Personal expenses
- Private phone calls which were not related to the property rental business
- Clothing which you bought for business purposes
- Your total mortgage payments
What are the changes to landlords’ wear and tear allowance?
Previously, if you were letting out a fully furnished property, you used to be able to claim for wear and tear of furnishings, such as cookers, carpets, beds and televisions. Previously, the allowance meant that you could claim 10% of the net annual rent each year. This has now been replaced with Replacement Relief, which applies to all rented properties, not just furnished homes. You can claim back anything that you spend on replacing a ‘domestic item’. It’s worth noting that you can’t claim tax relief on the cost of adding a kitchen for the first time or furnishing the property from scratch.
What else can landlords claim back for?
If you’re new to the investment scene, you may be unaware that you can claim back for expenses such as the cost of petrol for travelling between your rental properties. You can also claim for phone calls or texts that were sent in connection with a rental property. It is also possible to claim back the cost of subscriptions to property investment magazines, plus money spent on advertising the property, as well as legal and accountancy fees connected to the buy-to-let. We’d like to highlight that this is not tax advice and the tax rules can be complex. We always recommend that you explore your individual circumstances with a professional tax advisor.