Logic states that the lower the taxable profit from your rental business, the less tax you will pay. Landlords are often unaware of the most common tax-deductible expenses. Getting this right is vital for many landlords, as allowable expenses are deducted from rental income and they have a direct impact on the taxable profit.

WHAT IS DEDUCTIBLE?

As a rule of thumb, an expense can be deducted if it is incurred wholly and exclusively for the purpose of the business. These expenses can be deducted regardless of whether you prepare accounts on a cash or accruals basis.  

Keep in mind that, if you do prepare accounts on a cash basis, you can also deduct capital expenses. There are some exceptions to this, one being the cost of the property.

In circumstances where the accounts are prepared on the accruals basis, capital expenditure is not deducted when working out your profits. All is not lost – there may be some relief available depending on the nature of this expense.

EXPENSES CHECKLIST

Here are some of the most common expenses incurred. It’s vital to keep reports of all expenses, not only for your records, but to make calculating your taxable profit easier.

Common expenses include:

  • general maintenance and repairs to the property (but not improvements)
  • council tax
  • water rates
  • insurance (such as landlord’s insurance for buildings and landlord’s contents)
  • cleaning costs
  • gardening costs
  • letting agents’ fees
  • gas and electricity
  • property management fees
  • legal fees for lets of less than a year or for renewing a lease of less than 50 years
  • office costs, such as stationery, paper, printing and postage
  • accountant’s fees
  • advertising costs
  • phone calls
  • rent where the property is sub-let.

Mileage is allowable if you use your vehicle for your business. Mileage is calculated at 45p for the first 10,000 business miles and 25p thereafter.

Some financial costs are not deductible, such as mortgage interest relief. These cannot be deducted when working out profits. In its place, relief for 20% of the costs is deducted from the tax that you pay.

Keep hold of your receipts, keep a record, and save yourself some money!

If you found this useful, please share it using the icons at the side of the page, or leave a comment below.

Any questions?

If you’d like a meeting or a video call to discuss this, please get in touch with your favourite Liverpool accountant