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Which expenses can landlords deduct?

Landlords have had a lot to cope with in the last few years. Once the darling of both the national press and HMRC as budding entrepreneurs sought to make their own financial way in life and through retirement without being a burden on the state, they have become, to many, pariahs. They have been accused of inflating house prices and restricting house supply through the building on their bricks and mortar empire.

The tax system has certainly become a lot less generous too. Stamp duty on properties intended for letting is much higher than in previous years, the “automatic” 10% wear and tear allowance, and the change in the way mortgage interest is treated in the expression of taxable profit.

So, what can you claim back if you are a private landlord? Any money spent must be wholly and exclusively for the benefit of the business and the type of expenditure must be revenue-related, not capital-related. There are five main types of spending that qualify for tax deductibility and they are as follows:

Wear and tear and domestic item replacement

In the previous paragraph, we mentioned revenue-related expenditure, not capital-related expenditure. Most landlords will be acutely aware of the difference (and we plan to write about it in the coming weeks) but, for those unfamiliar, if you’re replacing something in your property, it’s:

  • revenue-related if it’s pretty much a straight swap with what’s there now, and
  • capital-related if what your replacement could be described as an improvement with that’s there now.

Landlords may now only claim tax relief if you buy furniture, furnishing, or kitchenware for your rental property and for domestic items if purchased after 6th April 2016.

Please note that tax relief is only available when purchasing a replacement and not an original.

Travel costs to the property

From 2017/2018 and for landlords running unincorporated property businesses, expenses rising from trade-related car, van, or motorcycle spending can be claimed for:

  • by using a flat rate per mile (45p per mile for the first 10,000 miles and 25p thereafter for cars and vans and 24p per mile for motorbikes regardless of distance over the year), or
  • deducting related running costs and claiming for capital allowances

Professional fees

You’re able to claim against management fees (the charges you pay to your letting agent) or, if you’re self-managing, the cost of advertising the property for rent to potential tenants. Any costs incurred to solicitors to either recover rental owed by tenants or to secure eviction are fully deductible.

You won’t be able to claim for your private tax return however the preparation of your rental accounts is deductible.

Redecoration costs

Redecorating your property or properties is fully allowable however, if the redecoration is part of a wider program of improvements, it will be treated as a capital cost and you will be only able to claim against it for capital gains tax when you sell the property.

Finance costs

Any money you borrow (including other costs like brokering fees) which you use to buy property or land which is then used in your rental business can be deducted no matter what security you offer to access the funding. The same applies to loans arranged to pay for property alterations, improvements, or repairs. However, the system surrounding tax relief on interest is changing – please contact us to find out more.

If you would like to talk with one of our team of qualified accountants about expenses deduction for your property portfolio, please call us today on 01932 704 700 or email your accounting partner at service@twpaccounting.co.uk.

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