Becoming a property investor and landlord should be approached as if you’re starting a new company. No matter the size, you have to keep track of your income and outgoings, and the good news is many costs can be deducted against your tax bill.
As a landlord you can deduct repairs, utility bills, insurance, letting agent fees, and legal fees from your tax. You’re not allowed to deduct the full amount of mortgage payment or personal expenses.
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.
Allowed Expenses
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:
- Repairing water leakages, gas leaks, burst pipes, electrical problems;
- Replacing/repairing broken windows, doors, gutters, roof slates and tiles;
- Repairing internal or external walls, roofs and doors;
- Repainting and decorating to maintain the original (this does not include any property improvements);
- Treating damp or rot problems, repointing and stone cleaning;
- Hiring specialist equipment to carry out necessary repair work;
- Replacing (to a similar standard) existing fixtures and fittings, e.g. radiators, boilers, water tanks, bathroom suites and kitchens (but not any electrical appliances), which have been damaged as a result of the problems requiring repair works. Replacing single glazing with double glazing will qualify here;
- 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)
Items you can’t claim for
Expenses you can’t claim a deduction for include:
- 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
Capital expenditure
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
Capital expenses aren’t allowable and can’t be claimed against your rental income, but you should keep records of them as you might be able to set them against Capital Gains Tax if you sell the property in the future.
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
More information can be found on the Government website.
Are Property Expenses Deductible If I Buy a House in a Conservation Area?
Yes, property expenses are still deductible when buying a house in conservation areas. However, there may be restrictions on certain types of repairs or renovations to maintain the conservation area’s historical and architectural integrity. It’s important to research and understand the specific regulations in the conservation area before making any purchasing decisions.
How Can I Deduct Property Portfolio Investment Expenses Against Tax?
When it comes to property investment, mistakes cost money. However, you can potentially deduct investment expenses against tax. Keep thorough records of all expenses related to your property portfolio, such as maintenance, repairs, and mortgage interest. Consult with a tax professional to ensure you maximize your deductions.
Final Thoughts
Treat your investment like a business and be sure to keep records of all transactions. If this all sounds very complicated, and you feel unsure how to deal with the financial implications of owning and renting out properties, then I highly recommend working with a financial expert.
Appointing an account will not only ensure you’re submitting the correct information in line with the latest tax legislation, but they can also help you receive the maximum tax relief available.
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