Here is another interesting question from one of our subscribers and one that is useful for every Landlord to know the answer to.
When you work out your taxable rental profit you can deduct allowable expenses from your rental income. The expenses must be wholly and exclusively for the purposes of renting out the property. This means that if an expense wasn’t incurred for the purpose of your property rental you can’t offset the cost against the rental income.
Here’s a list of allowable expenses and details of what is classed as capital expenditure. You can’t deduct capital expenditure against your rental income, but you need to keep a record of this as you can offset it against Capital Gains tax when you sell the property.
- general maintenance and repairs to the property, but not improvements (such as replacing a laminate kitchen worktop with a granite worktop)
Repairs such as:
- water rates, council tax, gas and electricity
- insurance, such as landlords’ policies for buildings, contents and public liability
- costs of services, including the wages of gardeners and cleaners
- letting agent fees and management fees
- legal fees for lets of a year or less, or for renewing a lease for less than 50 years
- accountant’s fees
- rents (if you’re sub-letting), ground rents and service charges
- direct costs such as phone calls, stationery and advertising for new tenants
- vehicle running costs (only the proportion used for your rental business)
- the full amount of your mortgage payment - only the interest element of your mortgage payment can be offset against your income
- private telephone calls - you can only claim for the cost of calls relating to your property rental business
- clothing - for example if you bought a suit to wear to a meeting relating to your property rental business, you can’t claim for the cost as wearing the suit is partly for your rental business and partly to keep you warm - no identifiable part is for your property rental business
- personal expenses - you can’t claim for any expense that was not incurred solely for your property rental business
Revenue expenses are allowable, which include the day-to-day running costs of the property, but you can’t claim ‘capital’ expenses.
Expenses are generally ‘capital expenses’ if they will be used in the business over a longer period of time, such as when you:
- add something to the property that wasn’t there before
- alter, improve or upgrade something that was existing
- include the purchase of furnishings and equipment for the property
These are examples of capital expenses that wouldn’t normally be allowable:
- adding an extension
- installing a security system if there wasn’t one before
- replacing a kitchen with one of a higher specification