Tax tips for Residential Landlords

Tax allowable expenses that can be set against your rental income. 

You can deduct certain expenses from the total rental income. The tax you pay is based on the rental income figure after deduction of expenses. You may only deduct expenses that are the result of letting out the property. There are special rules for some types of expenses, especially property repair costs.

 

Expenses

Any rent or ground rent you have to pay

Fees you pay to a letting agent

Legal fees on renewing short leases (but not when they are first made)

Interest you may pay on a loan to purchases the property (i.e. a mortgage)

Mortgage arrangement fees charged by the lender (see notes below)

Other loan interest directly related to the business may be allowed.

Insurance

Accountant’s fees

Cost of gas safety certificates and similar requirements

Electricity, gas and water (unless you already get this back from the tenant)

Repairs & maintenance (special rules apply – see notes below)

Telephone calls

Travelling expenses

Motor expenses (see notes below)

Wear and tear allowance (if the property is furnished – see notes below)

Use of Home as Office (see notes below)

Advertising for tenants

Sundry other expenses excluded elsewhere

 

Notes regarding expenses

 

Mortgage interest

The main property expense for most people is the mortgage payment. You can deduct only the interest part of the mortgage payment. If you have a repayment mortgage, the repayment part of any payments is not an allowable deduction. This means that the mortgage interest may be less than the full monthly repayment you make, as your mortgage repayments may include repayment of capital.

If you remortgage the property to withdraw equity or secure the loan on a different property you may still be able to get relief for the interest but you should seek further advice as this is a complicated area.

 

Motor Expenses

Most Landlords are not aware that they can claim for journeys relating to the rental property, such as, trips to the property, agents or shops to buy something relating to the rental.

 

The treatment of repairs and improvements

Ongoing repairs to the fabric and structure of a let property are expenses which can be deducted from your rental income. Examples of such repairs include:

  • exterior and interior painting and decorating,
  • damp and rot treatment,
  • mending broken windows, doors, furniture and machines such as cookers or lifts,
  • re-pointing
  • replacing roof slates, flashing and gutters.

But you cannot deduct expenditure on improvements, or expenditure needed to bring a property up to standard before the first letting. Expenditure on improvements can be added to the costs of the property and may reduce any capital gain when you sell the property.

The dividing line between improvement and repair can be difficult to judge. For example, if the windows needed replacing in the property you own, but you replaced single glazed windows with double glazed windows, is this a repair or an improvement, or a bit of each? In cases like this, you will be allowed the normal ‘modern equivalent’ – so double glazing is accepted as a ‘repair’ and you can deduct all the costs against your rental income.

Where there is a significant element of improvement – such as you replace the kitchen:

Conveniently, HMRC consider kitchens in PIM2020 and present three scenarios for the refurbishment of a fitted kitchen. Assuming that the dimensions of the kitchen remain unaltered:

  • Replacement with a similar standard kitchen, which counts as revenue and is allowable.
  • Replacement with a new kitchen of the same standard, but with changes such as additional cupboards or extra equipment, which equates to a reasonable apportionment, with the “add-ons” treated as capital not allowable.
  • The substantial upgrading of the whole kitchen, for example with high-quality materials and fittings, where the whole expenditure will be capital.

Furnishings

If you are letting a furnished property, and it has sufficient furnishings for the tenant to be able to live there without providing anything more, you are allowed a deduction of 10% of the gross rent for the cost of the furnishings and equipment.

PLEASE NOTE: For furnished property the Wear and Tear Allowance was abolished on 6th April 2016, it has been replaced with a new repairs and renewals basis, this means on the actual cost of repair or renewing an item can be claimed. This will apply to all rental property whether furnished or unfurnished. 

 

Disclaimer

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation.

 

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