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From insurance to cleaning costs, being a landlord may be a costly business. There are plenty of things to pay for. Fortunately many expenses can be claimed back, meaning that you can significantly reduce your tax bill. The legislation governing allowable expenses is not the easiest to understand and recent amendments have changed the playing field significantly. In this blog we will cover expenses – Landlords expenses & what landlords can and can not claim as well as the new domestic items relief.
What Landlords Expenses Can Claim?
Allowable expenses for Landlords
Generally speaking, you can deduct any expenses that are fully and completely incurred for the purpose of managing or keeping up your property. Allowable expense examples include:
- Contents insurance.
- Service costs (cleaning fees, for example).
- Household bills (such as council tax and utility bills).
- Legal fees (restricted to the renewal of a lease of less than 50 years, or for lets of less than a year).
- Accountants’ fees.
- Direct costs (including the cost of advertising for tenants and phone calls).
Note that if your business costs are only partial
For example if you use your phone for private as well as business use or if you are renting out part of your home you have to apportion your expenses accordingly. Only claiming a portion of your phone bill or your household utility bills for instance.
Capital Expenditure: Maximising Tax Deductions
Another way a landlord may be able to lower their tax bill is to deduct capital expenses which are funds spent to fundamentally improve a property.
What Qualifies as Capital Expenditure?
- Relevant purchases for the property (e.g. furniture).
- Works to enhance the property (e.g. an extension).
Ordinarily you are not able to deduct such expenditure from your normal tax bill. When the property is sold these expenses might be deducted from any CGT due.
Annual Investment Allowance (AIA)
Many reliefs may be available to landlords that operate a furnished holiday rentl business and spend money on building components such as the heating system or the purchase/installation of specified fixtures. You can use AIA £1,000,000 each year. AIA can also be claimed for items within communal areas in a residential building.
The yearly investment allowance (AIA) cap for qualified plant and machinery expenses spent starting on April 1, 2023 will be permanently increased by this proposal from £200,000 to £1,000,000.
What Expenses Can’t Landlords Claim?
Not all costs made by a landlord can be claimed back, and it is critical to stay updated on the laws governing admissible and non-allowable fees. Some key costs that cannot be claimed are:
Non-Allowable Costs for Landlords
- Interest payments on a mortgage: Full relief for mortgage interest is no longer available. Landlords can only receive a basic rate tax credit on their mortgage interest.
- Personal items: Expenses not related to rental properties cannot be claimed.
What is Domestic Items Relief?
The Domestic Items Relief replaces the old ‘wear and tear allowance’ (which allowed landlords who let fully-furnished properties claim up to 10% of the net rent per annum for wear and tear).
As of April 2016, landlords are only permitted to claim relief on money spent replacing items deemed domestic.
You can claim back any expenses paid for getting rid of the old products in addition to having the amount you paid for a like-for-like replacement subtracted from your tax liability.
Eligible Domestic Items for Claim
- Replacement appliances (fridges, etc.)
- Replacement curtains or carpets
- Replacement beds or sofas
- Replacement kitchenware (e.g. crockery)
Conclusion
Though recent changes make the legislation surrounding landlords expenses and allowances for landlords seem complex, there are a number of ways a tax adviser can help you reduce your liability. From setting up a limited company to exploring more unusual reliefs, the accountancy team at IBISS & CO will use their expertise and experience to ensure that you take full advantage of any potential savings. Contact us today to learn more.
