Tax deductions

A comprehensive guide to tax deductions for UK landlords

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Most of the expenses you incur when renting a home can be deducted from your tax bill as a landlord. Learn how to use them and what you can claim.

Expenses an owner can claim

Homeowners can generally deduct the costs of operating and maintaining their property, reducing their tax bill. If the rent you charge includes utilities such as water or council tax, you must include the rent in your income; however, you can deduct the fees you pay as an expense. For detailed information on all the tax deductions available to owners, you can contact the estate agents in Doncaster, to guide you through the process

Here are some examples of allowable expenses:

– water charges, council tax, gas and electricity charges

– insurance for owners

– service costs, such as the salary of gardeners and cleaners (as part of the rental agreement)

– Fees charged by rental agents

– legal costs for one-year leases or renewals of leases of less than 50 years – chartered accountant fees

– rents, rental charges and land rents

– direct expenses such as phone calls, stationery and advertising for new tenants

The cost must be borne entirely and solely by reason of the rental of your accommodation. If only part of an expense meets these criteria, you can deduct that part from your income – for example, the cost of lighting and heating a property used for private and commercial purposes. You must allocate your expenses if you rent only part of your accommodation or only for one period of the year. On buy-to-let mortgages, you can also claim part of the interest.

What impact does a deductible expense have on your tax bill?

Expenses are business expenses that you can subtract from your income when you file a self-assessment tax return to calculate your overall profit. Since the tax you pay depends on your profits rather than your total income, reducing your profits during the tax year reduces the amount of tax you owe. Most landlords will submit their tax returns in cash (for those earning less than £150,000 this is compulsory; however, it is possible to opt out). This means that your tax return should only include income earned during the tax year, as well as expenses incurred during that period. This would include projected income and expenses if you were filing on an accrual basis.

Owners receive an annual investment allowance.

You cannot deduct capital expenditures from the rental income you earn as a landlord. This means that you cannot deduct expenses related to extending your home or renovating a dilapidated property. When it comes time to sell your rental property, you may be able to deduct the cost of these investments from your capital gains tax payment.

Changes to “wear and tear compensation” for owners

Previously, you could claim wear and tear on furniture such as stoves, carpets, mattresses and televisions if the property or properties you rent are fully furnished. Each year, you can claim up to 10% of your annual net rent (income minus expenses) as wear and tear compensation. However, this is no longer the case. You can now claim tax relief on anything you spend to replace a “household object”, according to the government. Importantly, this only applies to things that are replaced. The cost of equipping a residence for the first time with furniture or household appliances is not eligible for the tax reduction. It can only be used when an item has been replaced and is no longer used in the home.

What qualifies for “Household Items Replacement Assistance”?

The government provides a list of domestic items eligible for this new subsidy. Here are some of them:

Beds replaced

Carpets replaced

Replacement of cutlery or crockery

Curtains that have been replaced

Refrigerators, washing machines and other replacement appliances

It’s important to keep in mind that you can only get a like-for-like replacement. For example, if you spent £600 on a new fridge but only £400 to replace your old one with a very similar one, you will only be able to claim £400 in tax relief. You can also claim the cost of removing items from your home (usually electrical appliances).

What is Household Items Relief Replacement and how does it work?

When calculating your net profit for the year, you can deduct the cost of replacing household items from your rental income tax. Suppose you recently replaced a number of items in your rental property in anticipation of new tenants arriving. Curtains are £200, a washing machine is £250 (plus £50 disposal fee) and a new bed is £400. The total amount of aid you can apply for is £900, which is £200 + £250 + £50 + £400. This can be subtracted from your annual rental income when calculating your tax bill at the end of the year.

To claim a tax reduction for repairs

Keep a record of all your repair and maintenance expenses. You must keep these records for six years after the end of the tax year to which they relate. You can deduct the cost of repairing damage caused by your tenants from their security deposits if they left the property in poor condition. But you should keep proof that the money came from them (a receipt or bank statement) so HMRC knows you didn’t pay for it yourself. If you paid someone else to do repairs or maintenance to your rental property, you can claim the full amount that was spent.

As certain tax deduction options are available to landlords in the UK, the landlord should ensure that they claim these allowances. It can be argued that you cannot claim everything on your return and that the total sum of your expenses (excluding interest payments) will not exceed your income in the tax year. Landlords in the UK can claim tax benefits for their rental property if they meet certain conditions. There is a maximum tax deduction limit, which depends on the rental income, the type of property and the number of properties owned by the owner. Claims are made or losses are calculated at the end of the year using a special form which calculates gross rental income, allowable expenses and net income.