The rules for allowable expenses for landlords have changed in recent years and a lot depends on your personal circumstances. But whatever they are, you will need to complete a self-assessment tax return.
This means seeking professional tax advice may be a good idea, but here we look at what landlords should know about the valid expenses they can claim.
Whether you are an ‘accidental landlord’ or have a sizable rental portfolio, you are running a business. This means that any money you earn from it is an income.
And if it isn’t your main job, this additional rental income may push you into the higher rate tax band. So rather than paying the basic rate tax of 20% you have to pay 40% of your income to HMRC.
This can have a huge financial impact. Therefore, it’s vital that you know there are allowable expenses available to landlords, which allow you to reduce your tax bill. Let’s find out what these are.
Allowable expenses for rental property
Allowable expenses you can deduct include those costs that are “wholly and exclusively for the purpose of renting out the property” according to the government website. This means that you can only claim if the costs are related to your rental property.
And you might be surprised to hear, there are actually quite a few costs you can deduct from your tax bill. So let’s get into it, because we all know: time is money.
1. General business expenses
If you are renting out property, whether this is just one or several, you are running a business. This means you are entitled to deduct general business expenses.
Office costs
If you have a huge portfolio and rent an office space to manage your rentals, then you can deduct the rent you pay for your office from your tax bill. And also the utility bills and other costs you incur for the office space.
But even if you don’t, things like phone calls or internet are allowable expenses a landlord can benefit from. As long as you use them to run your rental business.
You might have a designated phone that you only use to deal with the management of your rental property. In this case, the phone bill can be deducted as a whole. If you use your private phone, only the calls that relate to your rental property are classed as allowable expenses.
For example, if you call your tenant, you can deduct the cost for this call from your tax bill. But if you call your mum for a chat, it’s not an allowable expense, sorry.
And it’s the same for internet use. If you use the internet mostly privately, but 10% of your rental business, you can only claim 10% of the costs.
Travel costs
You might have to travel to your rental property from time to time. The costs involved, such as petrol or train or bus tickets, are classed as allowable expenses.
But only if the trip is wholly and exclusively for business purposes. So if you have a weekend away and happen to pop in to see your tenant on the way, it won’t count.
Marketing costs
If your rental property is empty, you have to pay to advertise it to find a new tenant. These costs are an allowable expense which you can deduct from your tax bill too.
Especially if you have several rental properties, this could save you a lot of money.
2. Professional fees
As a landlord, you might use professionals to help you manage your rental properties. Some of these you will be able to deduct from your tax bill.
Letting agent fees
You might be using a letting agent to manage your rental portfolio. These costs are classed as allowable expenses.
Accountancy fees
Depending on how big your rental portfolio is, you might need some help with your self-assessment. Dealing with this can be complicated, and you don’t want to make a mistake. Mistakes can cost you dearly, after all.
Even better, an accountant can make sure you aren’t missing out on any expenses you could claim. The accountant fees themselves are allowable expenses for landlords, so you can deduct them from your tax bill.
Solicitor fees
In some cases you can also claim solicitor fees as allowable expenses. But only for fees that cover less than a year’s advice and that are necessary for running your rental property business.
For example, if you need to evict a tenant and need legal advice, you can deduct the fees as expenses.
The legal fees that you may rack up while buying an investment property may include the solicitor, a surveyor and estate agent fees, which aren’t tax-deductible.
That’s because they are seen as capital costs, whereas professional fees, such as those from an accountant, are tax-deductible for an investment property.
3. Maintenance and repairs
As a residential landlord you are obliged to undertake any repairs on the property. The costs for these are allowable expenses. So if the roof of your rental property needs replacing, the costs can be deducted from your tax bill.
If the boiler breaks down, and you have to replace it, the cost of this is an allowable expense. But only if you replace like for like. So if you want to upgrade the boiler for a better one, then you can deduct the costs from your tax bill.
The same is true for other domestic items, such as curtains, desks, beds and sofas.
So, if you replace items such as curtains or beds, and this must be on a like-for-like basis, you can claim for these and for the cost of disposing of the old items.
Building work can only be deducted if they are repairs. If you are putting on an extension, this would not be classed as an allowable expense.
4. Running costs
Having rental property incurs quite a few running costs. These are classed as business costs and therefore can be claimed as expenses.
Essentially, this means that any expense you incur in the running of a rental property can be claimed against your tax bill – and you may find that accounting software designed for landlords will be of great help here.
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Service charges
If you have to pay service charges because the flat you rent out is in a building that doesn’t belong to you, you can claim the cost on expenses.
Insurance fees
Taking out landlord insurance to protect yourself and your tenants is a smart move. Even more so because insurance fees are classed as allowable expenses.
Cleaning costs
When a tenant moves out, most landlords send in a cleaning company to spruce up the place ready for the next tenant. This is part of renting out a property.
So these cleaning costs can be deducted from your tax bill.
Maybe you own a building with several flats and the communal areas are cleaned by a cleaner you hire. If so, these costs are also allowable expenses.
Gardening costs
If you have to hire a gardener to bring a neglected garden back to life after your tenant left or to maintain a communal garden space, you can claim the costs as expenses on your tax bill.
Utility bills
Often utility bills are paid by tenants, but not always. So if you are paying for these as a landlord, the costs will be part of your running costs. As such, they are classed as allowable expenses.
Council tax
If you have tenants, they will be responsible for paying council tax. However, if the property is empty, it’s on you.
The good news is that if you have to pay it, you can claim it as an expense.
Ground rent
Any ground rent that you have to pay for your rental property is an allowable expense on your self-assessment tax return.
5. Mortgage interest rates
In previous years, landlords could claim interest on their mortgage for the rental property as an expense. However, this is no longer possible.
Instead, the government has brought in a 20% tax credit. This means you can claim 20% of the interest you paid over the tax year on your self-assessment tax return, reducing your tax bill by this amount.
It’s not as good as it was, but it’s still better than nothing.
What you can’t claim for are your monthly mortgage payments though.
As you can see there are quite a lot of allowable expenses a landlord can expense. If you are unsure if an expense is allowable, the advice on the Gov.uk website states that if a definite part of a cost is an “expense incurred wholly and exclusively for the property business, you can deduct that part.”
Having a trusted accountant by your side will help you to ensure that you are claiming as many allowable expenses as is possible. This will save you money every year.
Different types of tax for a landlord
Now that we looked at what are allowable expenses for landlords, let’s look at the taxes that you have to pay.
The different types of tax for a landlord include:
Capital gains tax only comes into play when you are selling your rental property and make a profit doing so. Stamp duty will only need to be paid when you are buying a property to rent it out.
However, income tax and National Insurance Contributions are paid annually and will be based on the income you are making from renting out property.
If your rental business is run as a limited company, then you also have to pay corporation tax.
Register for self-assessment
To be able to claim expenses as a landlord you have to submit a self-assessment tax return. It’s important that the first thing you do as a landlord is to register with HMRC for self-assessment purposes.
When you are registered, you can file a tax return, either online or by filing in a paper form. Although HMRC is moving towards only allowing online filing.
The self-assessment deadline for submitting a tax return is usually 31st of October for paper forms and 31st of January for online tax returns. Once the return has been filed, you’ll need to pay the tax that is owed.
Allowable expenses for landlords – A summary
Costs you incur as part of managing your rental property or portfolio can be high. But the good news is that many of them are allowable expenses that you can deduct from your tax bill.
And as we have shown, there are actually quite a lot of allowable expenses landlords can benefit from, including letting agent fees, advertising costs and costs for repairs.
To ensure that you don’t miss any expenses you could claim, it’s worth having a trusted accountant look over your tax return. This is a good idea anyway to make sure all is in order, and you don’t get fined.
Another great tool is accounting software, because it makes it much easier to know if a cost is an expense. And it will save your accountant time when checking your return, which means a lower bill for you.
Best Accounting Software For Landlords – Our Picks
| Software | Features | Value For Money | Made For | Official Site |
|---|---|---|---|---|
| Outstanding | Outstanding | Landlords | Visit Website |
| Excellent | Excellent | Sole Traders & Small Businesses | Visit Website |
| Excellent | Good | Sole Traders & Small Businesses | Visit Website |
