ARE YOU A LANDLORD? Do you know what Expenses and allowances a landlord can claim????
You can reduce your tax bill as a landlord by deducting many of the expenses you incur when letting out a property. Find out how these work and what you can claim.
As a general rule, landlords can claim the expenses of running and maintaining their property, which reduces their tax bill.
If the rent you charge covers services like water, or council tax, you'll need to count the rent you charge the tenant within your income - but you can claim the costs you pay as an expense.
Some examples of allowable expenses you can claim are: water rates, council tax, gas and electricity landlord insurance costs of services, including the wages of gardeners and cleaners (as part of the rental agreement) letting agents' fees legal fees for lets of a year or less, or for renewing a lease of less than 50 years accountant’s fees rents, ground rents and service charges direct costs such as phone calls, stationery and advertising for new tenants
A greater detail of allowable expenses can be found here duly provided by the GOV.UK website :-
You can deduct expenses from your rental income when you work out your taxable rental profit as long as they are wholly and exclusively for the purposes of renting out the property.
Find examples of expenses incurred wholly and exclusively for the property rental business.
You can also claim expenses for the interest on a mortgage to buy a residential let property.
Other types of expenses you can deduct if you pay for them yourself are:
1) 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
2) Insurance, such as landlords’ policies for buildings, contents and public liability
3) Costs of services, including the wages of gardeners and cleaners
4) Letting agent fees and management fees
5) Legal fees for lets of a year or less, or for renewing a lease for less than 50 years
accountant’s fees
6) Rents (if you’re sub-letting), ground rents and service charges
direct costs such as phone calls, stationery and advertising for new tenants
7) Vehicle running costs (only the proportion used for your rental business) including mileage rate deductions for business motoring costs
Expenses you cannot claim a deduction for include:
The full amount of your mortgage payment - only the interest element of your mortgage payment can be offset against your income
Private telephone calls - you can only claim for the cost of calls relating to your property rental business
Clothing - for example if you bought a suit to wear to a meeting relating to your property rental business, you cannot claim for the cost as wearing the suit is partly for your rental business and partly to keep you warm - no identifiable part is for your property rental business
Personal expenses - you cannot claim for any expense that was not incurred solely for your property rental business
Allowable expenses do not include ‘capital expenditure’, such as buying a property.
Claiming part expenses
Where only part of an expense is for your property rental business, you can deduct that part as long as it’s wholly and exclusively for the property business.
The expense should be incurred wholly and exclusively as a result of renting out your property. Where only part of the expense meets this condition, you can deduct that part from your income – for example, the cost of lighting and heating a property which is partly used for private purposes as well as renting.
If you let only part of your home, or let it out for only part of the year, you have to apportion your expenses. You can also claim some of the interest on buy-to-let mortgages.
As a landlord, you cannot deduct expenses of a capital nature from the rental income you earn. That means, you can't deduct the cost of building an extension, or renovating a home that's in a rundown state.
You may, however, be able to use the cost of these investments to reduce your capital gains tax bill when you come to sell your rental property. Find out more: capital gains tax on property and how to work out your bill.
Changes to landlords' 'wear and tear allowance' If the property or properties you let out are fully furnished, you used to be able to claim for wear and tear of furnishings, such as cookers, carpets, beds and televisions. The wear and tear allowance allowed you to claim a maximum of 10% of the net annual rent (income less expenses) each year.
However, this has now changed. The government now allows you to claim tax relief on anything you spend on replacing what it labels as a 'domestic item.' Crucially, this only applies to items you are replacing. You can't claim tax relief on the actual cost of kitting out a property for the first time with furniture or appliances.
It can only apply when an item is genuinely replaced and no longer used in the property. What qualifies for the 'replacement of domestic items relief'?
The government lists a number of examples of what domestic items qualify for this new relief. These include: Replacement beds Replacement carpets Replacement crockery or cutlery Replacement curtains Replacement fridges, washing machines etc Replacement sofas It's worth remembering that you can only claim for a like-for-like replacement.
If, for example, you bought a new fridge worth £600, but the cost of replacing your old fridge with a very similar one was only £400, you'd only be able to claim £400 relief.
You can also claim for the cost of disposing items (usually electrical goods). How does the 'replacement of domestic items relief' work? You can deduct the cost of replacing domestic items from your rental income tax when calculating your net profit for the year, on which you pay tax. You replace a number of items in your property, ready for some new tenants.
These include curtains for £200, a washing machine for £250 (which also costs £50 to dispose of) and a new bed for £400. The total relief you can claim for is £200 + £250 + £50 + £400, which amounts to £900. This can be deducted from your annual rental income to work out your tax bill at the end of the tax year.
