Maximising Your Property Business Deductions: What You Need to Know
Running a property business comes with its fair share of expenses. To ensure you’re not paying more tax than necessary, it’s essential to deduct all allowable expenses when calculating your business profits. However, it’s just as crucial to understand which expenses qualify for deductions to avoid any unwanted attention from HMRC.
What Counts as a Deductible Expense?
In the world of property income, the tax rules often mirror those for trading businesses. A key principle here is the ‘wholly and exclusively’ rule. This rule states that an expense can only be deducted if it’s incurred entirely for the purposes of your property business. Simply put, personal expenses don’t qualify.
To make sure you’re only deducting business expenses, it’s wise to keep your business and personal finances separate. Use distinct bank accounts, retain all receipts and invoices, and keep accurate records of your transactions.
Handling Dual-Purpose Expenses
There are times when an expense serves both personal and business purposes. In these cases, unless you can clearly separate the business portion of the expense, you won’t be able to claim it as a deduction. A common example is everyday clothing. Unless your clothing qualifies as a uniform with your company’s logo, it’s considered a personal expense and isn’t deductible.
Apportionment: Splitting Business and Personal Costs
If an expense clearly has both a personal and a business component, you can apportion it and deduct the business portion. The apportionment must be done on a ‘just and reasonable’ basis.
Take the example of a car used both for personal and business purposes. If 25% of your car’s mileage is for your property business, then you can deduct 25% of the running costs as a business expense. This principle also applies to other expenses like mobile phones or home office costs.
Common Deductible Expenses for Landlords
While the expenses you incur may vary, there are some common costs that many landlords can deduct, including:
- Advertising costs for finding tenants
- Bad and doubtful debts related to unpaid rent
- Insurance premiums for your property
- Repairs and maintenance costs
- Council tax on properties you rent out
- Employee salaries and wages (including employer’s National Insurance and pension contributions)
- Travel expenses directly related to your property business
- Accountancy fees for managing your finances
- Cleaning and gardening costs to maintain the property
Legal and professional fees are only deductible if they are revenue in nature. For instance, fees incurred to evict a tenant can be deducted, but fees related to purchasing or selling a property are considered capital expenses and are not deductible.
Interest and Finance Costs: What Can You Claim?
If you own a commercial property or a furnished holiday let, you can deduct interest and finance costs. However, if you’re an unincorporated landlord with residential lets, you won’t be able to deduct these costs directly. Instead, you may receive relief for up to 20% of the costs as a tax deduction. This restriction doesn’t apply if your property business is incorporated.
Need Help Navigating Your Property Expenses?
Understanding what you can and can’t deduct in your property business can be complex. At Jon Davies Accountants, we’re here to help you navigate these rules and ensure you’re maximising your deductions.
Contact us today to discuss how we can support you in managing your property business’ finances effectively.
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