As a landlord, do you understand what expenses can be deducted from your tax bill? Find out more by reading our article below.
Why do I want to claim expenses?
As a landlord, you must pay tax on any profit from your property rental business (although income from property of less than £1,000 a year can be ignored).
You should deduct all allowable expenses so you do not have to pay more tax than what is required.
Make sure you remember that the profit calculation is undertaken for the property income business as a whole, not on a property by property basis.
So, it does not matter whether the expenses incurred in relation to an individual property exceed the rental income from that property as it is the overall result that matters.
What is the Cash Basis?
The cash basis is the default for eligible landlords from 6 April 2017. Where accounts are prepared on the cash basis, it is the date that the expenditure was incurred that is the key date.
What are allowable expenses?
An expense is allowable if it is incurred wholly and exclusively for the purposes of renting out the property.
Examples of expenses which may be allowable:
• Water rates
• Cleaning costs
• Rents where the property is sub-let
• Office expenses, such as stationery and phone calls
• Cost of advertising for new tenants
• Repairs and maintenance
• Gardening costs
• Cleaning costs
• Insurance (eg: contents and landlords’ buildings insurance)
• Letting agents’ fees
• Council tax
• Gas and electricity
• Accountants fees
Interest and other finance costs
Tax Relief is available for interest on a loan up to the value of the property when it was first let.
The way in which the relief is given for interest is changing from relief as a deduction from income, to relief as a deduction at the basic rate from the tax that is due.
• For 2017/18 – relief for 75% of the interest costs is available as a deduction and relief for the remaining 25% as a basic rate tax deduction.
• For 2018/19 – relief for 50% of the interest costs is available as a deduction, with relief for the remaining 50% as a basic rate tax reduction.
• For 2019/20 – only 25% of the interest costs are deductible, with relief for the remaining 75% being given as a basic rate tax reduction.
• From 2020/21 onwards, relief for all interest costs is given as a basic rate tax reduction.
Can I claim vehicle mileage?
From 6 April 2017 a deduction for vehicle costs can be claimed using approved mileage rates. This is easier than working out the deduction based on actual costs (although this method can be used).
The rates are as follows:
• Cars and vans – 45p per mile for first 10,000 business miles in the tax year, and 25p per mile for subsequent miles.
• Motorcycles – 24p per mile
Capital expenditure under the cash basis
Under the cash basis, expenditure for capital items is deductible unless specifically disallowed. For example, land and cars are disallowed.
If the property is let furnished then a deduction is allowed for replacing domestic items, as long as they are of an equivalent standard to the item being replaced. However, a deduction is not allowed for enhancement expenditure.
There is a property allowance of £1,000. If you have a property income under £1,000, you don’t need to inform HMRC.
If your property income is over £1,000, the £1,000 allowance can be deducted instead of deducting actual expenses.
This will be beneficial where your expenses are under £1,000.
Overall, it is important to understand what expenses as a landlord can be deducted from your tax bill. If you need to know more information, please contact us.
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