A comprehensive guide on tax deductions for landlords in the UK

Many of the expenses you incur while renting out a home can be deducted from your tax bill as a landlord. Learn how to use them and what you can claim.

Expenses that a landlord can claim

Landlords can generally deduct the costs of operating and maintaining their property, lowering their tax bill. If the rent you charge includes services such as water or council tax, you must include the rent in your income; however, you can deduct the charges you pay as an expense. To know detailed information on all the tax deductions available to landlords, you can contact the estate agents in Doncaster, to guide you through the process

The following are some instances of permissible expenses:

– water charges, council tax, gas and electricity charges

– insurance for landlords

– service costs, such as the pay of gardeners and cleaners (as part of the rental agreement)

– Fees charged by letting agents

– legal fees for one-year leases or renewals of fewer than 50-year leases – accountant’s fees

– rentals, service charges, and ground rents

– direct expenses such as phone calls, stationery, and new tenant advertising

The cost should be entirely and only borne as a result of renting out your home. If only a portion of an expense fulfils these criteria, you can deduct that portion from your income – for example, the cost of lighting and heating a property that is utilised for both private and commercial purposes. You must apportion your expenses if you just rent out a piece of your home or only for a period of the year. On buy-to-let mortgages, you can also claim a portion of the interest.

What impact does a deductible expense have on your tax bill?

Expenses are business charges that you might subtract from your revenue when filing a self-assessment tax return to calculate your overall profit. Because the tax you pay is dependent on your profit rather than your total income, lowering your profit over the tax year reduces the amount of tax you owe. Most landlords will submit their tax returns on a cash basis (for those earning less than £150,000, this is obligatory; however, it is possible to opt-out). This means that your tax return should only include revenue earned within the tax year, as well as expenses incurred during that time. This would include projected revenue and expenses if you filed on an accrual basis.

Landlords are given an annual investment allowance.

You cannot deduct capital expenses from the rental income you make as a landlord. That means you can’t deduct the expense of adding on to your home or renovating a run-down property. When it comes time to sell your rental property, you may be able to deduct the cost of these investments from your capital gains tax payment.

Changes to the ‘wear and tear allowance’ for landlords

You used to be able to claim for wear and tear of furnishings such as cookers, carpets, mattresses, and televisions if the property or properties you let out are fully furnished. Each year, you might claim up to 10% of your net annual rent (revenue less expenses) as wear and tear allowance. However, this is no longer the case. You can now claim tax relief on everything you spend to replace a ‘domestic object,’ according to the government. Importantly, this only applies to things that are being replaced. The cost of furnishing a residence for the first time with furniture or appliances is not eligible for tax reduction. It can only be utilised when an item has been replaced and is no longer in use in the home.

What qualifies for ‘domestic item replacement relief’?

The government provides a list of domestic items that are eligible for this new subsidy. These are some of them:

Beds that have been replaced

Carpets that have been replaced

Cutlery or crockery replacement

Curtains that have been replaced

Replacement refrigerators, washing machines, and other appliances

It’s important to keep in mind that you can only get a like-for-like replacement. For example, if you spent £600 on a new fridge but just £400 on replacing your old one with a very similar one, you’d only be able to claim £400 in tax relief. You can also claim for the cost of removing objects from your home (usually electrical goods).

What is the replacement of domestic items’ relief’ and how does it work?

When computing your net profit for the year, you can deduct the cost of replacing domestic items from your rental income tax. Assume you’ve recently replaced a number of items in your rental property in preparation for some new tenants. Curtains cost £200, a washing machine costs £250 (plus disposal fees of £50), and a new bed costs £400. The total amount of relief you can claim is £900, which is £200 + £250 + £50 + £400. This can be subtracted from your annual rental revenue when calculating your tax bill at the end of the year.

To claim tax relief for repairs

Keep records of all your expenses on repairs and maintenance. You must keep these records for six years after the end of the tax year they relate to. You can deduct the cost of repairing damage caused by your tenants from their security deposits if they’ve left the property in poor condition. But you must keep proof that the money came from them (a receipt or bank statement) so that HMRC knows that you haven’t paid for it yourself. If you’ve paid someone else to carry out repairs or maintenance on your rental property, then you can claim for the full amount that’s been spent.

Since, there are certain tax deduction options available for landlords in the UK, the landlord must ensure that they claim these allowances. It can be argued that you cannot claim everything in your return and the sum total of your expenses (exclusive of interest payments) will not exceed your income during the tax year. Landlords in the UK can claim tax benefits for their rental property if they meet certain conditions. There is a maximum limit for tax deduction, which depends on the rental income, type of property and number of properties owned by the landlord. Claims are made or losses are calculated at the end of year using a special form that calculates gross rental income, allowable expenses and net profit or loss figure. 

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