Date Posted: 01/11/23
Landlords can claim expenses for maintaining and running their property, which can reduce their tax bill. If the rent covers services like water or council tax, the rent charged to the tenant should be included in the landlord's income. However, the landlord can still claim the costs as an expense.
water rates,
council tax,
gas and electricity,
landlord insurance,
costs of services (such as gardeners and cleaners),
letting agents' fees,
legal fees for lets of a year or less,
accountant's fees,
rents, ground rents,
service charges, and direct costs like phone calls, stationery, and advertising for new tenants.
The expense must be incurred wholly and exclusively as a result of renting out the property.
If only part of the expense meets this condition, the landlord can deduct that part from their income. For instance, the cost of lighting and heating a property that is partly used for private purposes and partly for renting.
If the landlord lets out only part of their home or lets it out for only part of the year, they must apportion their expenses. Landlords can also claim some of the interest on buy-to-let mortgages.
Expenses are business costs that landlords can deduct from their income when calculating their overall profit on a self-assessment tax return. As the tax is based on the profit, reducing the profit will reduce the tax owed. Most landlords will file their tax return under the cash basis, which only includes income received and expenses paid during the tax year.
Landlords cannot deduct expenses of a capital nature from the rental income they earn. They may be able to use the cost of these investments to reduce their capital gains tax bill when they sell their rental property.
Previously, landlords with fully furnished properties could claim a wear and tear allowance of up to 10% of the net annual rent each year. However, the government now allows tax relief on the replacement of domestic items, such as beds, carpets, curtains, fridges, washing machines, and sofas. Landlords can only claim relief for like-for-like replacements and for the cost of disposing of items.
To claim replacement of domestic items relief, landlords can deduct the cost of replacing the items from their rental income tax when calculating their net profit for the year. For example, if a landlord replaces curtains for £200, a washing machine for £250 (including a disposal cost of £50), and a new bed for £400, they can claim relief of £900. This amount can be deducted from their annual rental income to work out their tax bill at the end of the tax year.
