Allowable Expenses for Landlords You May Have Missed
Becoming a landlord involves a number of expenses, many of which can be expected. But did you know that there are a range of allowable expenses you may be able to claim for? This is often an area that causes a lot of confusion, which Hamilton Fraser aims to clarify in the following article. Let us help you identify how to potentially reduce your tax bill and minimise the expenses incurred when renting out your property.
The general rule is that, as a landlord, you are entitled to claim for expenses associated with running and maintaining your property. Should you include services like council tax or water in the rent you charge, then you will be required to declare the rent you charge your tenants as part of your income – although you can still claim the costs you pay as an expense.
Below are the most common types of expenses you can claim for:
- Contents insurance
- Costs of services, including wages of gardeners and cleaners (as part of the rental agreement)
- Council tax, water rates, electricity, and gas
- Direct costs: phone calls, stationery, and advertising for new tenants
- Rents, ground rents, and service charges
- 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
A claimable expense is defined as such when it is incurred wholly and exclusively as a result of renting out your property. If only a part of the expense meets this condition, then you can deduct that part from your income.
Your expenses must be apportioned if you only let out a part of your property or let it out for only a part of the year.
Annual investment allowance for landlords
Landlords cannot deduct expenses of a capital nature from the rental income they earn. In plain terms, this means that you cannot deduct the cost of renovating a property that is in a rundown state or the building costs of an extension. However, you may be able to use the cost of these investments to reduce your capital gains tax bill during the same of your rental property.
Changes to ‘Wear and Tear’ allowance
In the past, if the property was rented in a fully furnished condition, landlords could make claims for the wear and tear of furnishings like carpets and beds (maximum of 10 per cent of net annual rent).
This has changed, and the government now allows for tax relief claims on anything that is spent replacing items labelled ‘domestic items.’ It must be noted that this only applies to any items you are replacing and cannot be used in relation to items that are used to furnish a property, for example.
Examples of eligible ‘domestic items’
- Replacement beds
- Replacement of crockery and cutlery
- Replacement sofas
- Replacement appliances (fridge, washing machine, cooker)
- Replacement curtains
- Replacement sofas
The claim only applies to replacement of like-for-like items, so if a new bed costs £400 but the old bed was only £200 then you are only allowed to claim relief on £200.
How does replacement of domestic items relief work?
Replacement of domestic items can be deducted from your rental income tax when you are calculating your net profit for the year, on which you pay tax.
Make note of the items and costs of replacing them to get your property ready for new tenants. This could for example include a bed for £200, a fridge for £400, and a new washing machine for £250. The total relief you could claim for would then total £850. Simply deduct the total from your annual rental income to calculate your tax bill at the end of the year.
Remember, Hamilton Fraser is always here to help protect your rental income and property. We have been providing award-winning landlord insurance and comprehensive cover for landlords since 1996. Our dedicated experts excel at delivering high quality customer service and tailored insurance policies that meet your business requirements.
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