Which expenses are allowable when preparing a Tax Return for a UK resident landlord?
Which expenses are allowable when preparing a Tax Return for a UK resident landlord? Find here our easy to follow guide.
Which expenses may be claimed on a Tax Return?
The costs and expenses incurred in maintaining your rental income are generally allowable and fall into the following categories:
- Rent (including ground rent), rates, insurance and other like items that you pay whether the property is rented or not
- Repairs, maintenance, renewals (see below for special rules)
- Finance charges and loan interest are not deductible, but limited relief is available for loan interest and other finance costs. See Finance cost relief
- Legal and professional costs including letting agents fees, accountants fees, legal fees on rent collection (see below)
- Costs of services provided, e.g. cleaning
- Other expenses, e.g. advertising, travel (see below), use of home as your office.
May I claim repairs, maintenance, and renewals?
First you must separate the fabric of the building from its furnishings and equipment. (Imagine it is turned upside down and shaken, what falls out is furnishings and equipment.) For the avoidance of doubt, furnishings and equipment includes: white goods, carpets and curtains, but not fitted kitchens or central heating.
As regards the fabric of the building
- Maintenance and advertising costs incurred before or between lettings are allowable as long as they were incurred in contemplation of, or preparation for or during that letting and as long as there is no ‘improvement’ element.
- The cost of a replacement kitchen or bathroom is allowable against rental income. The cost of a new or extra bathroom, kitchen or any other facility is treated as part of the cost of the property and is allowable against the gain when the property is sold.
- The cost of replacing heating systems is allowable as are all decorating costs.
- The replacement of integrated (kitchen) white goods qualify for tax relief as a repair of part of the fabric of the building; the replacement of free-standing white goods on a like-for-like basis is not treated as a repair but may be included within the Replacement Allowance.
- The repair of any part of the fabric of the building is generally an allowable expense.
As regards the furnishings and equipment
- The initial expenditure of furnishings and equipment never qualifies for tax relief, except in a Furnished Holiday Letting (FHL).
- However, repair and maintenance of the furnishings and equipment always qualifies for tax relief.
As regards legal and professional costs
- If the term of the lease exceeds one year then your legal fees for preparing the lease and the letting agent’s fees are not allowable. The legal and agent’s fees on renewing any lease of less than fifty years are allowable, but the legal and agent’s fees that relate to the payment of a premium on the renewal of a lease are not allowable.
As regards travel
- Travel expenses are allowable as long as the purpose of the travel was the maintenance of rental income and any other activity is purely incidental. If you travel to your property, check it, instruct builders, visit the letting agent then travel back – the cost of travel is allowable. If you intend to stop off on the way to visit a friend or do some Christmas shopping there is a duality of purpose in the visit and all the costs are dis-allowed. This is a particular problem (and a big temptation) for those travelling to the UK from abroad. Don’t be tempted!
As regards your home office
- You may claim the additional costs you incur that you would not incur if you did not work from home. Normally this will be stationery and the additional heating and lighting cost. HMRC is particularly keen to stop landlords making unrealistic claims!
- In May 2020 HMRC published its “simplified expenses” table showing that if you work from home between 25 and 50 hours per month the allowance is £10per month, unless you can produce evidence of higher additional cost.
As regards training, etc.
- This will normally be included with “other items”. To the extent that the cost of training provides you with new knowledge then there is no tax relief. To the extent that it refreshes or updates existing knowledge then it is allowable.
What if I am paying a mortgage on my rental property?
- No payments of the mortgage (either capital or interest) are deductible in arriving at the taxable income.
- Finance charges and loan interest are not deductible, but limited relief is available for loan interest and other finance costs. See Finance cost relief.
- You may claim the tax reduction of 20% of finance costs and mortgage interest if you re-mortgage as long as the aggregate value of the mortgage(s) does not exceed the value of your property when you first let it. For example, Mr Jones bought a property for £100,000 in 1997 with a mortgage of £80,000. Then he let it in, say, 2002 when it was worth £150,000 and it is now worth £750,000. He can re-mortgage it for £500,000 but only the interest on £150,000 of the loan qualifies because this was the value when he first let it. Interestingly it doesn’t matter what he does with the money.
Which costs and expenses relating to the purchase may be claimed on the Tax Return?
The costs and expenses associated with abortive purchases are never allowable. For example, if you are thinking of buying a property and pay to have it surveyed, and then decide not to proceed, there is no tax relief for the survey costs.
The costs and expenses associated with the purchase are treated as part of the purchase price and may be deducted from the gain (or added to the loss) when you sell the property. Such expenses might include legal (conveyancing) fees, survey fees, Stamp Duty, etc. They might also include the cost of getting a dilapidated property into a lettable state, especially if you bought it at a discount because of its condition. You should keep a record of these, together with the supporting receipts, so that you can claim relief for the expenditure when you sell.