Landlord Expenses Guide

Below is a list of the most common expenses which can be offset against residential property income held outside of company or LLP;

Interest and other finance charges

The interest accrued and any arrangement fees on any loan taken out to purchase the property are claimable but for residential properties, the full amount is only allowed up until 5th April 2017. If it is a repayment mortgage, then it is only the interest element which can be claimed, not the total repayments. If you have a separate bank account for the property business then any bank charges can also be claimed.

From 6th April 2017, tax relief on interest paid by landlords of residential properties was restricted gradually (by 1/4 for each tax year) so that from 6th April 2020, interest is not an allowable expense in computing the profits of the business, but will attract tax relief at 20%.

Repairs and maintenance

Repair work carried out on the property can be claimed provided that it is not a capital improvement. If you lived in the property prior to letting it, then work carried out before the property is let is seen as maintenance of the property as a result of private use rather than for rental purposes, so cannot be claimed.

Repairs to furnishings cannot be claimed if there is a furnished residential letting.

Do not forget to include the gas safety certificate, EPC, EICR costs, boiler service etc if applicable.

Legal, management and accountancy fees

You cannot claim any legal fees in connection with the purchase of the property or any fees for the initial lease if it is for more than one year. Any legal fees in connection with the renewal of a lease, a shorthold tenancy of less than 1 year, eviction of clients, rent collection or management fees and accountancy are all claimable.

Insurance

It is important that you insure the property and the premium for the buildings and/or contents can be claimed. Life assurance premiums are not claimable.

Rent, rates and council tax

You may pay ground rent if the property is a flat. The tenant normally pays the rates or council tax, but if you do pay these costs or there are any void periods where you pay these costs then these can be claimed.

Services

If you pay any service charges or for any other services in connection with the letting e.g. electricity in common areas, these should be claimed. If the property is a furnished holiday letting then it is likely that you will pay for electricity, gas, water, television licence, telephone and other services.

Travelling expenses

Do you travel to the property to carry out maintenance or deal with issues with the tenants? If so you should claim the cost of travelling. If you travel by car, you can now claim the authorised mileage rates which are 45p per mile for the first 10000 business miles in a tax year and 25p per mile for each additional business mile.

Administration expenses

These can include postage, stationery, telephone calls and other administrative expenses. The rules for claiming the use of home as an office have changed from 6th April 2013. Either a complex calculation has to be made justifying the charge or the following can be claimed depending on the hours worked in an office:

It is unlikely that a charge for using your home as an office can be justified unless you are managing a number of properties yourself.

Replacement furniture relief

The wear and tear tax allowance of 10%, which owners of furnished residential rental businesses could claim for the cost of buying and maintaining furniture etc., was scrapped on 31 March 2016 for companies and 5 April 2016 for other landlords. It was replaced with a new allowance for the cost of replacement of domestic items.

Unlike the wear and tear allowance, the current tax deduction applies to landlords of partly furnished or unfurnished residential properties as well as furnished ones. However, it doesn’t apply to furnished holiday lets; different tax deductions, called capital allowances, can be claimed for those.

Where a residential property is not a Furnished Holiday let or no Rent a Room relief is claimed, the expenditure on replacing items of furniture and white goods will be allowed as an expense less any proceeds on the disposal of the item being replaced. The cost of assets which are not replacements is not allowed as an expense.

Capital expenditure

The cost of purchasing or improving a property (e.g. an extension) cannot be claimed as revenue expenditure against your property income. The distinction between capital and revenue expenditure is not black and white. If you buy a property and simply redecorate it before you let it out, this will be considered to be revenue expenditure and allowed to be offset against rental income. If however, you bought a property for a significantly lower price than normal because it was in a poor condition and then carried out substantial works, this expenditure would probably be considered as capital expenditure.

However, most capital expenditure is eligible for relief for Capital Gains Tax purposes when you come to sell the property, so it is important that you keep records and receipts for the expenditure incurred.

Capital allowances (not available on residential lettings apart from furnished holiday lets)

Whilst structural works cannot normally be claimed, capital allowances are available on the purchase of fixtures, plant and machinery. There is an Annual Investment Allowance for expenditure up to £1,000,000 from 1st January 2019 until 31st December 2020 when it reverts back to £200,000. As most landlords will not be spending more than the annual limit or claiming for a car, cars and eligible expenditure over the annual limit are not discussed.

Examples of expenditure eligible for Annual Investment Allowance are as follows:

• Cookers
• Washing machines
• Dishwashers
• Refrigerators
• Electrical systems
• Washbasins
• Sinks
• Baths
• Showers
• Water systems
• Furniture
• Carpets
• Curtains
• Boilers
• Heating systems
• Storage equipment
• Counters
• Machinery
• Lifts
• Alarm systems

The list is not exhaustive and you should obtain further advice from us, particularly if your expenditure is over the annual limit.

If you sell an asset on which you have previously claimed Capital Allowances, the proceeds are taken into account and may create an additional income charge.

DISCLAIMER

The above is provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. Lexicon Tax Ltd t/a Lexicon Taxi cannot be held responsible for the consequences of any action or the consequences of deciding not to act.