Valid expenses you could claim as a Landlord

*Please note the information in this article may be out of date

Are you a Landlord? This article aims to help you make the most of your rental income.

Are you a new landlord or a seasoned property investor? Maybe you are considering purchasing a new home, and letting out your current property? Maybe you are working abroad for a while, and renting your home to make ends meet? Before you take the plunge (or even if you took the plunge years ago), this article aims to help you make the most of your rental income.

Let’s say you are currently employed, and you have just begun receiving income from property. Living the dream, as it were (congratulations, by the way), but this year, your property income has put you into the higher-rate tax band by £2,000. Now, for every £1 of income over the threshold, you’re giving 40p of it to HMRC.  In this case, that’s £800.

The old owner reduced the property price on purchase, as the roof is overdue a repair, but you’ve convinced yourself the roof has still got some life in it. If it ain’t broke, don’t fix it. Let’s fast forward to the new tax year. It’s May, and it’s raining non-stop. Out of nowhere, your tenant calls you up and tells you that the roof has started leaking. Oh no!  Now you have to pay for the repair. You knew it was coming, so you call the repairman. He says it’ll cost £600 to repair the roof.

That extra £2,000 of rental income is starting to look an awful lot less. Some of what’s left is going to be swallowed up by the restriction on mortgage interest relief for high earners.  Therefore, wouldn’t it have made sense to instead do a bit of planning to both reduce your tax bill AND ensure your properties are ship shape before the tax year ended?  Read on as we explore some typical expenses you may be able to claim as a landlord.

Claimable expenses

As a landlord letting a property to tenants, there’s a slightly different set of costs/expenses, which reduce your rental profit and your tax bill, compared to self-employed or company directors. Necessary repairs and maintenance of rental properties are generally allowable. Here’s our top-ten tax-deductible expenses for landlords and property investors:

Motor expenses

If you legitimately incur costs running a vehicle to manage your property business, then they may be claimed as an expense.  Let’s say you inherited a property from your parents, who lived in a lovely, but remote village in the north of Scotland.  You only have to travel a few times a year, but when you do it’s hundreds of miles. It can add up, and often you’ll find that HMRC’s mileage rates will beat claiming your actual costs.  For the first 10,000 miles each year, you can claim 45p per mile. Anything over 10,000 miles, you claim 25p. Maintenance etc. is included in this, so you can’t claim for things like repairs and fuel. Usually this works out to be the best option.  Though a note of caution: if you utilise the services of a letting agent, this would treated as the journey start point.

Alternatively, you can claim the percentage of the actual cost of running your vehicle that is used in managing your property business. It’s always assumed that the vehicle will have some private i.e. non-business, use, so you should never claim the full cost of running it. You’ll have to make an appropriate estimate. This will vary for each person, but up to 50% wouldn’t be an unreasonable claim for a full-time landlord with many properties. It would be unreasonable however if you rent one property in your own street.  You’ll have to figure out the real cost, and keep your fuel receipts, repair invoices, car insurance and MOT documents, lease agreements etc. If that sounds like a headache, there’s nothing stopping you from making a mileage claim.

Just remember, you must pick one of these and stick to it each year until you change your vehicle. You can’t claim mileage one year then apportioned costs the following year for the same car. So choose wisely!

Travel and subsistence

As we mentioned above, travel costs incurred while visiting your existing properties (and if you’re looking for new ones) are generally claimable. But for those of you whose properties are not in a far away place, you may prefer to travel via train, bus or taxi.  Hotel costs are potentially claimable and meals in restaurants if justifiable i.e. you are working far away from home, but only ever for your costs.  It is important to be reasonable – if you take some family or friends on a trip for a few days, and view a property for one hour, this is not going to count as a business expense. Only claim travel that is wholly and exclusively related to business.

Office Costs

Most landlords do their admin from home, and so you are able to claim for this.  As with mileage, there is an HMRC approved flat-rate of £4 per week. Provided you are working 25 hours per week from home, you can claim this.  There is also a more complicated option. HMRC allow you to claim a reasonable proportion of your household bills. You can total your mortgage interest, utility bills, and other home costs and make a reasonable estimate of the percentage of business use. If you use one room, take the total number of rooms, excluding bathrooms and kitchens. Divide by this number. If you only use half of the room, half it again, and so on. You would normally pick one of the above methods and stick to it each year, just like we discussed with motor expenses above.

Legal and professional fees

Your property tax accountant is not just there to save you money with good advice; their fee is also tax deductible. As is the fee for that property course that you attended, although be careful with courses where you are learning a brand new skill as opposed to reinforcing your existing knowledge, as this could affect your claim.

However, the same doesn’t always apply to solicitor, surveyor and estate agency fees as they are often attached to the purchase and are what are called capital costs.  Though things can get even more confusing incurring legal fees on a remortgage. So don’t be afraid to seek professional advice for property tax advisors such as Rita4Rent cutting corners and/or claiming for non-allowable expenses can lead to penalties and other costs, which, needless to say, are not tax deductible.

Furnishings

There are a large number of landlords who rent out fully furnished properties. In the past, these landlords were able to claim a “wear and tear” allowance, of 10% of net rental income, but sadly that has come to an end.  You can still claim the actual cost of replacing furniture in the property. This only applies to existing furniture, so you can’t claim back the cost of initially furnishing a property. But still, if your tax bill is starting to look a bit steep, it might be time to throw out those old, tattered, mismatched couches and get a new 3-piece suite before 5 April.  Your tenant will be happy too.

Getting started

Before you start letting your property, you will likely incur some expenses (i.e. “pre-trading expenditure”). Any expenses that you incurred before you started renting may still be allowable, if they would have been tax deductible after the rental business started, like repairs neglected by the previous owner. In this case, the expenses can be claimed as if they were incurred on the first day of the business. Professional advice is again advisable here as anything deemed to be an “improvement” is disallowable.  Care should also be taken when incurring costs prior to first let to make the property habitable, as again, these may not be allowable deductions.

Rental losses

All of your UK property lettings are treated as one UK property business. Because of this, the loss on any one property is automatically offset against profits on the rest. Don’t get too excited though; any overall loss cannot be set off against your other income such as employment income, but you can carry it forward into future tax years and set off against your future rental profits. Of course, make sure you register these losses with HMRC.  Take care though if you have a Furnished Holiday Let however, as these losses cannot be offset against your standard buy-to-let profits.

Council tax and utility bills

A landlord will often encounter void periods during their property’s lifecycle.  Let’s imagine your tenant moves out. The flat is now looking pretty lonely, and until you find a new tenant, you’ll have to pay any council tax or utility bills that they would normally pay. Fortunately, you can claim the whole cost of these against annual rental income.

Ground rent and service charges

Landlords who rent out a flat will know that service charges for common areas are pretty common. Depending on the work required, the cost can vary wildly. Usually, you will also have to pay ground rent and service charges to factor for things like maintenance, gardening, heat/light or even security. You can claim tax relief on the lot which is good news.

Insurance

Highly recommended, though not essential, specialist landlord insurance will cover not only the cost of rebuilding your property but also your liability as a landlord. You can add cover for contents, legal fees and rent guarantee insurance to cover you if your tenant does not pay. For an average low-risk rental property, cover should only cost from a couple hundred pounds a year. And better yet, you can claim tax relief on this. If you don’t have cover yet, it’s definitely worth considering it.

Are you really getting the most out of your rentals?

To conclude, the key point is to make sure that you do not miss out on any tax relief to which you are entitled. Many landlords are making allowable purchases without claiming the relief. And it goes without saying, always keep your receipts!

It’s important to remember that HMRC are constantly changing the tax rules for landlords; what is claimable this year may change next year. It is therefore highly recommended to seek professional tax advice from property tax specialists, such as Rita4Rent.