Generating and income through property rental
If you get an income from renting out a property, you will likely be needing to complete a Self-Assessment Tax Return, and pay tax on any income received. There are several expenses you can claim against your rental income profit which will reduce the amount of tax you owe. In this article we look at Landlord business expenses
What are allowable expenses?
Landlords can deduct some of the costs associated with being a landlord from the profit section of the Self-Assessment tax return. The costs associated with being a landlord would be classified as ‘allowable expenses’, and say for example you brought in £10,000 in rental income year and your landlord allowable expenses totalled £3,000, you’d only pay tax on £7,000.
However, HMRC has strict rules on what landlords can claim as an allowable expense. For a landlord cost to be an allowable expense, it must have come about exclusively for the purposes of renting out the property.
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What expenses can I claim?
- General maintenance & repairs – HMRC makes a clear distinction between property repairs and property improvements. The cost of redecorating or repairing a broken fixture can be an allowable expense as long as it’s a like-for-like repair or replacement. You can’t, for example, claim for replacing a laminate kitchen worktop with a granite worktop.
- Insurance – All of your landlord insurance policies are allowable expenses. This includes buildings, contents and public liability insurance, as well as any additional cover you buy to cover you for loss of rent.
- Utility bills – You can claim back the costs for a range of charges including ground rent, service charges (if you’re sub-letting), council tax and utility bills like gas and electricity. However, if the tenants are responsible for paying utility bills, you can only claim back this cost when the property is empty.
- Legal & professional fees – Paying for professional services like accountancy, conveyancing and interior design can be classed as allowable expenses. You can also claim for solicitor fees in relation to debt collection or other legal issues related to the property.
- Travel costs – The travel and vehicle running costs to your rental property is an allowable expense. This includes public transport fares, petrol, vehicle tax and insurance. But remember you can’t claim for private or regular travel – it must be travel directly related to running your rental property.
- General costs – You can also claim for general running costs like your phone and broadband bill, office equipment and stationery. The costs of marketing your property including fees to letting agents, photography and advertising are also allowable expenses.
What expenses can’t I claim for?
- Capital expenditure – Expenses such as buying furniture or adding an extension to the property are not classified as allowable expenses, and will instead be deducted from the capital gains tax calculations when you sell the property.
- Clothing – Even if you bought a suit to wear to a meeting relating to your rental property, you can’t claim it on your tax return.
- Personal expenses – Expenses such as your private phone bill cannot be claimed against your rental profit.
What if my allowable expenses are less than £1,000 a year?
If your annual gross property income is £1,000 or less, from one or more property businesses you will not have to tell HMRC or declare this income on a tax return. You may be required to complete a tax return for other income. If your annual gross trading income is £1,000 or less, from one or more trades you may not have to tell HMRC, however there are circumstances when you must register for Self-Assessment and declare your income on a tax return.
The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property. If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income.
If your annual gross property income is £1,000 or less, you will not need to tell HMRC, unless you cannot use the allowances. If it’s higher, you’ll need to declare your property income. You cannot deduct more than the amount of your income and create a loss.
You must tell HMRC if you have:
- gross property income over £1,000 up to £2,500 – contact HMRC
- property income over £2,500 – register for Self-Assessment
If you have two businesses and claim the property allowance in one business you may not claim actual expenses in respect of the other business. You cannot use this allowance on income from letting a room in your own home under the Rent a Room Scheme.
Landlord business expenses
Being a landlord can be expensive, so please get in contact with the team at Direct Peak to help guide you through any landlord expenditure and save as much tax as possible!
Direct Peak provides a dedicated business tax accountant, who will prepare your annual accounts and tax returns. They will be on hand to answer any tax queries you have.
Your business tax accountant will ensure that the company is set up in the most tax-efficient way and that you are claiming for all the correct expenses to maximise your earnings.
Landlord business expenses
In the UK, landlords can claim various business expenses against their rental income to reduce their tax liability. Here are some common business expenses that landlords can claim:
- Mortgage Interest: Landlords can claim tax relief on the interest portion of their buy-to-let mortgage payments.
- Repairs and Maintenance: Expenses incurred for repairing and maintaining the property, such as fixing a leaky roof or repairing broken appliances, can be claimed.
- Insurance: The cost of landlord insurance, which covers buildings, contents, and liability, can be claimed.
- Letting Agent Fees: If you use a letting agent to manage your property, their fees can be claimed.
- Council Tax and Utility Bills: If you, as the landlord, pay the council tax or utility bills (such as water, gas, and electricity) for the property, you can claim these expenses.
- Advertising and Marketing: Expenses related to advertising the property, such as listing fees on property websites or newspaper ads, can be claimed.
- Legal and Accountancy Fees: Fees paid to solicitors or accountants for services related to your rental business can be claimed.
- Ground Rent and Service Charges: If you own a leasehold property, you can claim these expenses.
- Travel Expenses: If you need to travel to the property for property management purposes, such as inspections or repairs, you can claim the associated travel costs.
- Capital Allowances: Landlords can claim capital allowances for certain fixtures and fittings, such as furniture, appliances, and carpets.
It’s important to note that the rules regarding landlord business expenses tax deductions can change, so it’s advisable to consult a tax professional or refer to the latest guidance from HM Revenue and Customs (HMRC) to ensure compliance with current regulations.