It is important that landlords of rental properties in the United Kingdom are aware of the expenses that can be deducted from their rental income. As a rule, these expenses must be wholly and exclusively for the purposes of renting out the property in question.
Since April 2017, tax relief on mortgage costs used to buy UK investment properties is being gradually restricted to the basic rate of tax.
The reduction in the relief for finance costs for landlords will most affect higher rate and additional rate taxpayers with significant mortgages on their properties. The deductions from property income will be restricted to 75% for 2017-18, 50% for 2018-19, 25% for 2019-20 and 0% from 2020-21.
Other common types of deductible revenue expenditure paid for by the landlord include:
- General maintenance and repairs to the property (but not improvements).
- Water rates, council tax, gas, and electricity.
- Insurance costs.
- Letting agent and management fees.
- Qualifying legal and accountancy fees.
- Direct costs such as phone calls, stationery and advertising for new tenants.
From April 2016, the removal of the 10% wear and tear allowance, that allowed landlords to reduce the tax they paid on furnished property lets, was a significant loss for many landlords.
The 10% deduction was available to landlords regardless of whether furnishings in their property were replaced or not. The wear and tear allowance was replaced by the Replacement of Domestic Item Relief. The new relief only allows landlords to claim tax relief when they actually replace furniture, furnishings, appliances, and kitchenware.
Landlords must keep a record of any capital expenditure which has been incurred on an investment property. These expenses cannot be claimed as revenue expenditure against property income but can usually be offset against any Capital Gains Tax when selling a property.
This can be a complicated area and landlords are often surprised at the expenditure that can and cannot be claimed. Exceed can help you ensure that all relevant expenses associated with your rental properties are properly accounted for and form part of your Self Assessment disclosures.
Please contact Exceed for any further assistance or advice.