What landlord expenses are tax deductible in the UK?
No matter how you became a landlord, whether you’re building a portfolio or fell in to it accidentally, keeping your books in order and knowing what to declare will make all the difference come the dreaded tax return.
Nobody wants to think about tax, but as a landlord (even if you’re just renting out a room) it’s something you’ll need to keep on top of. Luckily, the tax treatment of landlords is pretty generous, even after wide-ranging changes introduced in the last two years. By making sure you know what’s tax deductible, you can help to make sure that you’re not hit with an unfairly large bill.
As a rule of thumb, any expense that you deduct against profit must be “wholly and exclusively for the purposes of renting your property”. But when that can cover everything from decoration and repairs to utility bills and management fees, how exactly do you identify what is and is not tax deductible as a landlord?
Landlord expenses that are NOT tax deductible
First, it’s important to understand recent changes to landlord tax. In the past, landlords were able to offset their mortgage interest payments. This was seen as a key favourable treatment for the private rented sector. However, from 6 April 2017, basic rate taxpayers began to lose their relief on mortgage interest payments, along with the interest on any other property financing. The relief is being phased out gradually. For the 2018-19 tax year portion of mortgage interest payments that are tax deductible is 50%; in 2019-20 it will be reduced to 25%; and in 2020-21 the relief will be abolished altogether. This was a hugely controversial move, and has caused some landlords to talk about selling up. If you have a loan on your property, you should read the government guidance on tax relief for residential landlords, which includes some useful case studies.
There are other costs that are not deductible, or which are offset in different ways. The general rule is that ‘revenue expenses’ are allowable deductions (provided they are wholly and exclusively for the purposes of renting the property), while capital expenditure is not. Revenue expenses relate to the day-to-day running of the property, while capital expenditure are used over a longer period of time – for example upgrades or additions to the property or its contents. However, you should still keep track of these expenses, as you may be able to offset them against a Capital Gains Tax bill if you sell your property in the future.
Tax deductible expenses for landlords
And exhale. Got all that? Ok, now for expenses you can deduct against rental income.
Cleaning, maintenance and repair
General maintenance and repair costs are tax deductible. However, you can’t claim for improvements – only work to bring the property back to the standard it was in before.
Bills
The full cost of bills – such as water rates, electricity, gas and council tax – are deductible, but only when they’re being paid by the landlord.
Insurance
The cost of your landlord insurance policy is also tax deductible. Read more about landlord insurance.
Services
Some properties require more upkeep than others. Fortunately the services of a gardener, cleaner, exterminator, or handyman can be deducted against income – so long as the landlord pays them directly and that work they undertake is for the benefit of the tenants.
Letting agent and management fees
Finding a tenant isn’t always easy, and finding the right one can be harder still – so many landlords choose to let their property through an agent. These fees are tax deductible, as are the fees incurred if you choose to have your property fully managed by an agent.
Accountants’ fees
And finally, one of the biggest decisions when it comes to your Self Assessment is whether to employ an accountant or do it yourself. While good accountants don’t come cheap, their fees are at least tax deductible. The same goes for legal fees, provided that they relate either to lets of a year or less, or to the renewal of a property lease for less than 50 years.
What are ‘part expenses’?
It’s possible that you’ll incur a cost which is only partly related to the property rental, and which also benefits you personally. This is particularly common with properties in which only one room is rented, or which are lived in by the landlord for part of the year. In these cases, you need to work out what portion of the cost is related to the rental income – so, for example, if you live in the property six months of the year, you could claim 50% of the otherwise allowable costs.
As with all tax and legal matters, it’s important that you seek professional advice if you’re in any doubt. A qualified accountant can help you make sense of landlord tax, and a good one will pay for themselves very quickly.
