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Being a landlord can be a costly business: from insurance to cleaning fees, 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, however, and recent amendments have changed the playing field significantly. In this blog, we will cover expenses – what landlords can and can’t claim – as well as the new domestic items relief.

What Expenses Can Landlords Claim?

Allowable expenses

Generally speaking, any costs incurred wholly and exclusively for the purposes of running or maintaining your property can be treated as an allowable expense. Examples of allowable expenses 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

Another way in which a landlord could potentially reduce a tax bill is via the deduction of capital expenses – i.e. money that has been spent to fundamentally improve a property. Examples include:

  • 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; it may be possible to offset these costs against a capital gains tax bill if and when the property is sold, however. Moreover, there are certain reliefs that may be available – for landlords who run a furnished holiday lettings business and spend money on integral parts of the building (the heating system, for instance), or the purchase/installation of certain fixtures (e.g. a fitted kitchen), it is possible to take advantage of the Annual Investment Allowance (up to £200,000 per annum). AIA can also be claimed for items within communal areas in a residential building.

What Expenses Can’t Landlords Claim?

Not every cost incurred by a landlord can be claimed back, and it’s important to keep up to date with the current rules governing allowable and non-allowable expenses. Some key costs that cannot be claimed are:

  • Mortgage interest payments. Whilst relief is available at a reduced rate, it’s no longer possible to offset the entirety of your mortgage interest against your income tax bill. The rate of relief is gradually being reduced over the next few years, until it reaches a fixed rate of 20 in 2020.
  • Personal items.

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’.

In order to deduct such costs from your tax bill, you need to make a like-for-like replacement; moreover, note that it is a ‘replacement’ – you’re not able to claim anything if you are furnishing a property for the first time.

Examples of ‘domestic items’ include:

  • Replacement appliances (fridges, etc.)
  • Replacement curtains or carpets
  • Replacement beds or sofas
  • Replacement kitchenware (e.g. crockery)

As well as deducting the money spent on a like-for-like replacement from your tax bill, you can also claim back any costs incurred when disposing of the old items.

Though recent changes make the legislation surrounding 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.

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