Keeping More of Your Hard-Earned Rent
Keeping More of Your Hard-Earned Rent: A Landlord's Guide to Allowable Expenses
Keeping More of Your Hard-Earned Rent: A Landlord's Guide to Allowable Expenses
Being a landlord can be rewarding, but it also comes with its fair share of responsibilities and, yes, expenses. The good news is that HMRC recognises many of these costs as legitimate business expenses, which can be deducted from your rental income, ultimately reducing your tax bill. At Barnett & Co Accountants, we believe in empowering landlords with the knowledge they need to maximise their profits and stay compliant. So, let's delve into the world of allowable expenses for UK landlords.
Understanding what you can and cannot claim is crucial. Claiming expenses incorrectly can lead to penalties from HMRC, so it's always best to be thorough and keep meticulous records. This blog post will provide a comprehensive overview, but remember, every landlord's situation is unique. We always recommend seeking personalised advice from our expert team at Barnett & Co to ensure you're claiming everything you're entitled to.
The Essentials: What Can You Typically Claim?
Here's a breakdown of common allowable expenses for landlords in the UK:
1. Property Repairs and Maintenance:
This covers costs incurred in keeping your property in a lettable condition. Think of things like:
General repairs: Fixing broken windows, leaky taps, damaged plasterwork, or faulty wiring.
Redecorating between tenants: Painting and decorating to make the property appealing to new tenants. However, the initial cost of decorating a property before it's ever let is usually considered a capital expense (more on that later).
Replacing broken fixtures and fittings: Like-for-like replacements of items such as toilets, sinks, or kitchen units due to wear and tear.
Example: Replacing a cracked bathroom tile or fixing a sticking door lock are allowable repair costs.
2. Property Management and Letting Agent Fees:
If you use a letting agent to manage your property, the fees they charge are generally allowable expenses. This includes:
Tenant finders' fees: Costs associated with finding new tenants.
Management fees: Regular fees for services like rent collection, property maintenance, and tenant communication.
Inventory costs: Fees for preparing an inventory at the start and end of a tenancy.
3. Insurance:
Protecting your investment is vital, and the premiums you pay for various types of insurance are usually deductible:
Landlord insurance: Specifically designed to cover risks associated with rental properties, such as property damage, public liability, and loss of rent.
Buildings insurance: Covers the cost of repairing or rebuilding the property itself.
Contents insurance (for your own contents): If you provide furniture or appliances, the insurance for these items is usually allowable.
4. Council Tax and Utility Bills:
Generally, if you are responsible for paying the council tax or utility bills (gas, electricity, water) for the property during void periods (when there are no tenants), these costs are allowable. However, if the tenants are responsible for these bills as part of their tenancy agreement, you cannot claim them.
5. Interest on Buy-to-Let Mortgages:
You can no longer deduct the full amount of mortgage interest from your rental income. Instead, you'll receive a tax credit based on 20% of your mortgage interest payments. This change was phased in over several years.
Example: If you pay £500 in mortgage interest in a month, you'll receive a tax credit of £100 (£500 x 20%).
6. Other Property-Related Costs:
Several other expenses directly related to your rental business can be claimed:
Accountancy fees: The cost of hiring an accountant (like Barnett & Co!) to help with your tax affairs.
Legal fees: Costs associated with drawing up tenancy agreements, eviction proceedings, or other legal matters related to your rental property.
Direct costs: Phone calls and stationery directly related to managing your property.
Travelling expenses: Reasonable travel costs incurred solely for the purpose of managing your rental property (e.g., travelling to the property for repairs or to meet tenants). However, commuting between your home and the rental property is usually not allowable.
Advertising costs: Expenses for advertising your property to find new tenants.
What Isn't Allowable? The Capital vs. Revenue Distinction
It's important to understand the difference between capital and revenue expenses. Revenue expenses are the day-to-day costs of running your rental business (like repairs), which are generally allowable. Capital expenses, on the other hand, are for improvements or enhancements to the property that add lasting value. These are generally not immediately deductible from your rental income.
Examples of Capital Expenses:
Building an extension.
Installing a new kitchen or bathroom (beyond a like-for-like replacement).
Replacing the entire roof.
While you can't deduct capital expenses from your rental income, you may be able to claim capital allowances when you eventually sell the property, which can reduce any capital gains tax liability.
Don't Forget About Record Keeping!
To successfully claim allowable expenses, you must keep thorough and accurate records of all your income and expenses. This includes invoices, receipts, bank statements, and any other relevant documentation. Good record-keeping will not only make it easier to complete your tax return but also provide evidence if HMRC ever queries your claims.
How Barnett & Co Can Help
Navigating the world of allowable expenses can be complex. At Barnett & Co Accountants, our experienced team can provide you with tailored advice and support, ensuring you're claiming all the expenses you're entitled to while staying compliant with HMRC regulations. We can help you with:
Understanding which expenses are allowable in your specific circumstances.
Setting up efficient record-keeping systems.
Preparing and submitting your tax returns accurately and on time.
Answering any questions you have about your tax obligations as a landlord.
Don't leave money on the table! Contact Barnett & Co Accountants today for a consultation and let us help you maximise your rental income. We're here to support your success as a landlord.
