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If you’re a landlord, you’re essentially running a business, and like any business owner, there are certain costs that you can claim as expenses when calculating your end-of-year profit and tax liability. In this guide, we’ll explore the different types of expenses that landlords can claim.
As tax can be quite complex, we would always recommend that landlords seek advice from a qualified tax professional.
It’s important to note that when it comes to tax relief for landlords, there are several different aspects to consider:
Some expenditure can only be claimed against the gain when the property is sold.
Some expenditure can be deducted from rental income when calculating taxable income.
Some expenditure may not be deductible but is subject to special rules.
Let’s take a closer look at each of these aspects.
Claiming Against Property Sale Gain
When you sell a rental property, you’ll be liable for capital gains tax as it’s essentially a second home and not your primary residence. However, you can offset some of the purchase costs against the gain. The costs that can be offset include:
Purchase price
Stamp Duty
Legal fees
Building survey charges
Independent inspection charges
Auctioneer’s costs (if applicable)
Make sure to obtain a full financial statement at the end of the purchase from your solicitor and keep any relevant receipts.
Expenses Deductible Against Rental Income
There are several types of expenses that can be deducted from rental income when calculating profit. However, it’s important to note that these expenses must be incurred solely for the purpose of running the rental business.
The following expenses can be claimed:
Finance costs: Any interest or arrangement fees paid on a mortgage or loan can be claimed at 20% of the cost as tax relief rather than offsetting against rental income.
Repairs and maintenance: If repairs and maintenance aren’t considered capital improvements, then the costs can be claimed against rental income.
Legal, management, and accountancy fees: Any fees associated with contract renewals, rent collections, evictions, management fees, or accountancy fees can be claimed.
Insurance: Premiums for property and contents insurance can be claimed.
Rent, rates, and council tax: If there are any void periods where you have to pay these expenses, they can be claimed back against income.
Wages: If you employ someone to do things like cleaning or gardening, you can claim their costs as well. However, be careful when “employing” someone’s services as they could be considered an employee.
Travel expenses: If you need to travel to and from the rental property to deal with any issues, you can claim these expenses. However, they must be reasonable, and costs incurred while visiting relatives in the area would not be seen as reasonable.
Administration expenses: These include costs such as postage, phone calls, stationery, and the use of a home office. You can claim for the use of a home office in two ways.
Special Rules
You cannot claim for capital improvements against rental income. Any significant improvements or repairs that lead to an improvement would be classed as a capital expense. However, this isn’t always black and white. The government provides the following guidance:
Expenses are ‘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 already existed, or purchase furnishings and equipment for the property.
Capital expenses cannot be claimed against 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.