How many tax allowances do you think you can claim from owning a rental property? The truth might pleasantly surprise you.
Being a landlord is a business, but from our experience, not every landlord knows what they’re entitled to. As well as the obvious costs like mortgages and maintenance, there are many smaller expenses that can soon add up and make a real difference to your bottom line.
Believe it or not, HMRC wants you to claim and even accepts digital copies of receipts to make it easier. Simply take photos of your paper receipts and put them in a folder on your phone, then keep any digital receipts in an email folder. This streamlines the job of retrieving them later on.
So, just what can you claim? Well, there are five main areas of allowable expenses, and we cover them all in this week’s blog. We’ll guide you through everything you can claim so that, instead of leaving wasted money on the table, you keep more in your pocket.
GENERAL MAINTENANCE AND REPAIRS
Keeping your property up-to-date and in good condition is how to attract and retain the best tenants. But more than that, looking after your investment is highly tax-efficient with plenty of expenses you can claim back, including:
- Repairs and replacements to the property structure and exterior, such as the roof, windows and walls, together with permanent interior fixtures like sinks, toilets and radiators.
- Decorating costs, including paint, wallpaper, flooring and contractors.
- Buying and replacing furniture, curtains and blinds.
- General upkeep and maintenance, such as gardeners and cleaners.
- Safety checks for gas, electricity and smoke alarms.
Any expenses you claim must be for maintaining and repairing your property, rather than updating it. Improvements are only tax deductible when they are incidental to a repair, like swapping a broken single-glazed window for a double-glazed unit, or replacing worn-out old-fashioned appliances.
Adequate insurance cover is essential to protect your investment property against any unexpected damage or loss. Every landlord should have the following five types of cover: some are included in other policies, and all are allowable expenses.
- Building insurance protects your property against damage from fire, storms, floods and leaks, with cover for the structure and exterior as well as permanent interior fixtures such as bathroom fittings, kitchen units, and wall tiles
- Contents insurance is essential, even for unfurnished properties. It covers appliances, floor coverings, curtains, blinds, and other fixtures, fittings and furnishings in case of damage or loss caused by your tenants or intruders.
- Liability insurance protects you if a tenant takes legal action against you for injuries or damages caused by your property. The cost is usually just a few pounds per month, but check your Landlord’s Contents policy to see if you’re already covered.
- Rent protection guarantee insurance covers you if your tenants stop paying the rent, and the insurance company will also help you regain possession of your property.
Insurance might feel unnecessary, but it provides peace of mind and cover for when the unexpected hits, which it will do at some point. Ask an independent insurance broker to scour the market for the best deal, and then remember to claim back all the costs on your tax return!
BILLS, ADMIN AND PAPERWORK
There’s a surprising amount of allowable expenses for the general running of your rental property. These costs can really add up over time, and you’re entitled to claim back all of the following:
- Direct costs like advertising for new tenants, phone calls, and stationery you use to run your rental property.
- Water rates, council tax, gas and electricity for either void periods or if you include them in the rent.
- Travel expenses such as petrol or public transport costs from visiting your rental property, buying goods and managing contractors.
- HMO License fee for Houses in Multiple Occupation.
- Ground rents, service charges and any residents association or management fees.
These expenses must be wholly and exclusively related to your rental property. If part of the expense is for something else, you need to apportion the cost. As an example, if you drove to IKEA and bought a light fitting for your rental property and another for your home, you could claim 50% of what you spend on petrol.
PROFESSIONAL LANDLORD SERVICES
There are various services that make it simpler, easier and far less time-consuming to get the most out of your rental property. The good news is that the costs of all the following industry professionals are fully tax deductible.
- Inventory clerks create comprehensive lists of all the items in your rental property to prove its condition at the start and end of a tenancy in case of a dispute.
- Accountants help you track your rental income and expenses, handle your tax return and stay on top of changes to allowances to ensure you claim what’s yours.
- Managing agents oversee the day-to-day of your rental property, and we handle rent collection, repairs, maintenance, tenant relations, safety checks, periodic inspections and emergencies.
- Letting agents find the right tenants for your property. We look after all the advertising, photos, viewings, referencing, and creating the tenancy agreement.
- Credit check agencies investigate a tenant’s credit history and assess their financial situation and ability to pay the rent.
- Solicitors help you regain possession of your property in case you need to evict your tenants.
While every landlord should maximise their tax efficiency and profits, remember that a truly passive income comes from valuing your time as much as the rent you receive. The more time you have, the more you can live a life you love.
The way landlords can deduct their mortgage payments from their taxable income has changed relatively recently, so here’s an outline of what you can claim, along with a useful loophole.
- From April 2020, the amount you can deduct from your taxable income is fixed at 20% of the mortgage interest. The remainder of the interest and capital repayments are no longer allowable expenses.
- Lower-rate taxpayers were unaffected by the change, but you’ll now pay more if you’re in a higher tax band, either through existing earnings or by the new allowance increasing your taxable income.
- The change only affects individual landlords and doesn’t apply to limited companies, who can still deduct their entire mortgage interest. Useful if you’re looking to expand your portfolio.
These changes make it all the more important to stay on top of available mortgage deals in case you have a fixed rate coming to an end. By staying one step ahead, you can seamlessly switch to a new deal without moving to a more expensive variable rate.
Are you claiming all your allowable expenses?
If you’re a landlord in Leeds, we’d love to help you improve the performance and profit of your rental property. Whether you’re looking to attract high-earning professionals, maximise your income or claim back everything you can, it’s what we do all day.
Call us on 0113 460 2416 or email us at firstname.lastname@example.org for a friendly chat with one of our team.