When landlords are renting out a property, many costs can be incurred. For example, repairs, IT software or maintenance, or even advertising costs to make sure that the property is let. In order to save on tax bills, landlords should claim relief on allowable expenses where possible.
What is the general rule?
Broadly, a deduction is allowed for revenue expenses that are incurred entirely for the purposes of the property that is being let. Relief for this money spent depends on whether the cash basis or the accruals basis is used. Under the default cash basis, expenditure can be deducted unless a deduction is specifically prohibited, as is the case for land, property and cars.
What are the common expenses covered?
Below is a list of common expenses which may be deducted as long as the general rule is met.
- general maintenance and repairs to the property (but not improvements);
- water rates;
- council tax;
- gas and electricity;
- insurance (such as landlord’s insurance for buildings and landlord’s contents);
- cleaning costs;
- gardening costs;
- letting agents’ fees;
- property management fees;
- legal fees for lets of less than a year or for renewing a lease of less than 50 years’
- accountant’s fees;
- office costs, such as stationery, paper, printing and postage;
- advertising costs;
- phone calls; and
- rent where the property is sub-let.
Relief is not available to claim if it is the tenant, rather than the landlord that incurs the expense.
What about vehicle costs?
If you use your own car for the purposes of the property rental business, deductions can be made and claimed on a mileage basis using the simplified expenses system.
The rate for cars and goods vehicles is 45p per mile for the first 10,000 business miles in the tax year, with an extra 25p per mile after this.
Interest and other costs
Relief can be claimed on interest costs, where the property was funded with borrowings, but not for any capital repayments on the mortgage. Interest costs are allowable on borrowings less or equal to the cost of the property when it is first let, with no need for the mortgage to be secured.
Relief for interest and associated finance costs in 2020/21 is given fully as a tax reduction at the basic rate. For 2019/20, 25% of the costs were deductible in computing profits, with relief for the remaining 75% given as a tax reduction at the basic rate.
How do I make sure I get the relief?
Keep records of all expenses incurred in relation to the property, with receipts and invoices, failing to claim allowable deductions means in unnecessary tax payments, so this is important!
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