Claiming the right rental expenses for buy-to-let landlords against income can be a minefield for landlords, as it’s not always particularly straight forward.
We’ve put together this post, to showcase some things you should be considering as a landlord when you’re looking at what to claim as expenses against your rental income.
Rental expenses which can be claimed against buy-to-let income
First of all, it’s important to note is that with any expenses, they have to be entirely related to business purposes otherwise they cannot be claimed.
Tax must be paid on the income from buy-to-let property, minus allowable expenses. In this case, allowable expenses could be anything that you’re required to purchase for the running of your property such as:
- Letting Agents
- Accountant fees
- The legal fees for lets which are a year or less long
- Legal fees for renewing a lease which has less than 50 years left
- Interest on property loans
- Maintenance and repairs (but not the cost of work to make improvements)
- Council tax
- Service charges, ground rent, or rent
- Upkeep services like gardening or cleaning
- Utility bills
- Other costs related to letting the property such as advertising or stationery
When is a repair not a repair?
Allowable rental expenses include any costs relating to repairs and maintenance of a property, but they don’t include ‘capital improvements’.
Repairs can be deemed as capital improvements, if the purchaser is required to spend a significant amount of money on the property in order for it to generate an income.
If a company is buying property, it needs to be able to demonstrate that it’s commercially viable from the outset of the acquisition in order for repairs not to be deemed ‘capital improvements’.
What constitutes a repair?
A repair is any work carried out, in order to restore a building to its original condition in some way.
This might be replacing part of a roof which has been subject to storm damage, or it might be decorating a property between tenants.
With repairs, it’s important to note that if a landlord is covered by insurance, they can only claim any portion of cost which is not covered by insurance as expenses. The same applies if they keep part of a tenant’s deposit from the Tenancy Deposit Scheme in order to repair damage inflicted on the property by a tenant – expenses can only be claimed on any repairs which exceed the amount of the withheld deposit.
Back in April 2016, a replacement of domestic items relief was introduced. This allows for the replacement, but not the initial purchase of certain domestic items.
According to HMRC documentation these can include (but are not limited to):
- Moveable furniture (sofas, tables, bed frames etc)
- Furnishings (curtains, rugs, carpets etc)
- Household appliances (fridges, freezers, washing machines etc)
- Kitchenware (utensils, crockery, cutlery etc)
However, fixtures don’t count. Fixtures are defined as:
- Any plant or machinery installed or fixed in or to a dwelling-house such that it becomes part of that dwelling-house
- Any boiler or water-filled radiator installed in a dwelling-house as part of a space or water heating system
So examples would include fitted items such as built-in cupboards, washbasins, toilets, or baths.
Rental allowance deduction
If your total expenses or income is below £1000, then you should claim the rental allowance deduction. This will either mean that you don’t have to pay any tax, or your tax liability will decrease.
Whilst this article is for general information purposes and not advice, you can read full guidance on what you need to know as a landlord on the government website.