As a professional landlord, you aim to run your business at a profit. That means maximising rental income and minimising your expenses. But, when it comes to filing your tax return, you need to turn that thinking on its head and maximise the expenses you claim. That way you keep your tax liability to a minimum — and it’s entirely legal!
So, it’s important to understand what HMRC defines as allowable expenses and make sure you claim them all on your self-assessment tax return. Our brief guide on landlord allowable expenses 2021 will help you identify the main categories, but it may pay to take professional advice as some areas of landlord taxation can be complex.
Main categories of landlord allowable expenses 2021
Landlord allowable expenses fall into a number of main categories, provided they are used exclusively for your business as a landlord. These include:
- General business costs - office costs, travel, phone and broadband, marketing and letting agents’ fees
- Fees to professionals – accountants, surveyors, solicitorsInsurance – building, content and rent protection cover
- Service fees – cleaning, gardening, decorating, building services
- Repairs – any repairs or replacements that don’t count as improvements
- Property charges – ground rent, utility bills, council tax
Certain expenses are not allowable:
- Restoration – getting a property into rentable condition
- Improvements – improvements such as extensions to the property or new furniture are not allowable
- Interest payments – tax relief on interest to buy a rental property or items for the property has been replaced by a tax credit
General business costs
Your phone and broadband bills are allowable, but only the proportion used for your rental business. You can also claim for the costs of office equipment such as computers, printers and telephones as well as consumables such as stationery, paper and printer ink.
Travel costs to your rental properties are allowable. These include a proportion of costs of petrol, vehicle tax, insurance and repair, and bus or train fares. You can’t claim for private travel or regular travel between your home and your office.
You can claim for the costs of marketing your property, including fees to letting agents, photography, advertising, production of virtual tours, videos and marketing brochures.
Fees to professionals
The fees you pay for professional services such as accountancy, bookkeeping, surveys, interior design, architecture and conveyancing are allowable. You can also claim for solicitors’ fees in connection with debt collection, eviction or other legal issues related to your properties.
All of your insurance costs are allowable, including buildings and contents insurance, business vehicle cover and special insurance that you can take to cover loss of rent through tenant defaults or vacant property.
Fees for services
If you hire a specialist to carry out work on your properties, you can claim their charges against tax. Include charges from builders, plumbers, electricians, decorators, kitchen fitters, gardeners, cleaners, window cleaners and carpet fitters.
However, you can only charge for work that is classed as repairs. Any work to improve the property is not allowable.
Repairs and replacements
HMRC makes a clear distinction between repairs or replacements and work that improves a rental property, although the distinction might not be quite so clear to you as a landlord! So check carefully before making a claim.
Allowable repairs include work such as redecorating to bring a property up to standard after a tenant has left, repairs or replacement of a boiler or an appliance that is not working correctly and repairs to structural damage.
You can also claim for replacement of fixtures such as curtains, light fittings, moveable furniture, toilets, basins, showers and baths so long as you replace them on a like-for-like basis.
When you are making claims for repairs, include the cost of materials as well as any fees paid to specialists to carry out the work.
You can claim for a range of charges on the property, including ground rent, council tax, and utility bills such as gas, electricity and water supply. However, if your tenants are responsible for paying utility bills, you can only claim the cost for any period when the property is vacant.
Expenses that are not allowable
You can’t claim any costs that you incur to bring a property up to habitable standard before you make it available for rental. That includes the purchase cost, as well as the costs of any repairs, conversions or other building work. ImprovementsAny work that improves the property or adds value is not allowable as an expense. If, for example, kitchen units were damaged or in poor condition, you could replace them with equivalent units of the same value and claim the cost.
However, if you replaced them with units of superior quality, the total cost would not be allowable. But, you could claim part of the cost – equivalent to the value of the original – if the units were damaged or unusable. The additional cost would not be allowable.
So, if the value of the original units was £3,000 and the replacement units cost £5,000, you could claim £3,000, but not the additional £2,000.
The same principle applies to building work that improves the property, such as adding an extension or carrying out a loft conversion to create additional rooms. Those costs are not allowable.
In the past, you could claim for interest payments on a buy-to-let mortgage or other loans to purchase items for the property. However, the government has phased out that allowance and replaced it with a tax credit.
You can now claim only 20 percent of your annual interest payments in a tax year as a credit against your tax liability. So, if your interest payments came to £7,500, you could claim a credit of £1,500.
Portico can help
Taxation for landlords can be complex. If you need help or advice on any aspect of tax, our property tax specialists can help. Please contact us today for more information on property tax.
To find out how much your property is currently worth, try our online property valuation, or check out our rental calculator to see if you’re charging the correct rent.