As a landlord, it’s essential to understand the intricacies of allowable expenses to effectively manage your finances, as they’re a way to reduce your tax bill.
Therefore, you need to know what expenses you can — and can’t claim — to make your tax claim as watertight as possible. In this blog post, we explain everything you need to know. Keep reading to understand how you can reduce your tax liability.
What are allowable expenses?
Allowable expenses are costs that a business incurs “wholly and exclusively for the purposes of [its] trade, profession or vocation”, as HMRC puts it. The business can then deduct the cost from its pre-tax profit to reduce the figure HMRC applies a tax charge to — resulting in a lower tax bill.
In other words, for an expense to be allowable for tax purposes, it has to be made (usually) solely for business purposes.
We say usually, because certain purchases made for both business and personal use can also be allowable, such as a mobile phone. In this case, you would claim for the portion of phone bills that correlate with the portion of time you use the phone for business.
Allowable expenses landlords can claim
There are a lot of allowable expenses landlords can claim, unique to their profession. First, let’s cover some common expenses landlords can also claim.
First, there are phone costs as we’ve already seen. You may also be able to claim basic equipment like stationary, printing, and marketing and advertising.
If you own an office, you can claim for the costs you incur to run the office, from energy bills to water. If you work from home, on the other hand, you can claim tax relief
Meanwhile, if you have employees, you can claim allowable expenses for salaries, bonuses, pensions, employer’s National Insurance, and more.
As for allowable expenses specifically related to landlords, you may be able to claim for:
- Repairs and maintenance: Costs related to tasks like fixing windows, repairing plumbing or electrical issues, repairing or replacing damaged fixtures are allowable.
- Letting agent fees: If you use a letting agent to find tenants, collect rent or manage the property, you can claim their fees to reduce your tax bill.
- Council tax and utility bills: Council tax, water, gas and electricity bills for the rental property can be claimed.
- Insurance: Insurance premiums for buildings, contents, or landlord-specific can be claimed as allowable expenses.
Allowable expenses landlords CAN’T claim
Save yourself some time and headache but reading about what expenses you can’t claim as a landlord:
- Restoration costs: Costs related to restoring a property to a habitable standard and making it rentable cannot be deducted. This includes expenses like the purchase of materials, repairs and other building work.
- Improvement: Any work done to a property that is done to improve its overall value is not an allowable expense. Replacement costs are allowable — but only up to the original item’s value. So if you spend £3,000 to replace a £2,000 item, you can only deduct the original cost of £2,000.
- Interest payments: In the past, landlords could deduct the whole cost of interest payments on buy-to-let mortgages or other loans. This is no longer the case. Instead, you can claim a tax credit worth 20% of the annual interest payments.
Need help claiming your allowable expenses? We can help. Get in touch with a member of the team today and we’ll help you with your taxes.