Everything you need to know about allowable expenses for landlords

Understanding allowable expenses for landlords is crucial for managing your rental property finances effectively and minimising your tax bill. Knowing what expenses you can claim can make a significant difference in your profitability. Here, we’ll walk you through everything you need to know about allowable expenses for landlords. 

What are allowable expenses?

Firstly, though, let’s define allowable expenses. You will inevitably be spending money on the upkeep and maintenance of your rental property. The good news is that you will be able to claim money back from your rental income. 

Allowable expenses for landlords are costs that you incur while renting out your property that can be deducted from your rental income to calculate your taxable profit. These expenses can only be claimed if they have been wholly and exclusively used for the purpose of renting out the property. This means that you can’t claim on costs that you use for your own personal gain. 

Categories of allowable expenses for landlords

There are a few different categories that you can claim under when renting out a property, for example:

Property maintenance and repairs

Maintaining and repairing your rental property is essential to keep it in good condition because this is ultimately your source of income. Allowable expenses for landlords in this category include:

• General repairs: Fixing broken windows, repairing roofs, and mending plumbing issues.
• Maintenance costs: Regular maintenance such as painting, decorating, and garden upkeep.
• Wear and tear: Replacing worn-out carpets, fixtures, and fittings.

Property management costs

If you use services to help manage your property, such as a property management company, these costs can be claimed as expenses, too. Here are some examples of property management services that you can claim back on: 

• Letting agent fees: Fees paid to letting agents for finding tenants and managing the property.
• Property management fees: Costs for property management services.
• Legal and professional fees: Legal fees for drawing up tenancy agreements or for advice on rental matters.

Utility bills and council tax

If you cover utility bills and council tax for your rental property, these are allowable expenses:

• Gas, electricity, and water: Bills for these utilities can be deducted if you pay them on behalf of your tenants.
• Council tax: If you pay the council tax for the property, this is an allowable expense.

Landlord insurance

Landlord insurance is a vital part of managing a rental property, and any related costs are deductible, too. It includes things like landlord building insurance, landlord contents insurance (if you provide furnished properties), and buy-to-let insurance. 

Mortgage interest

Mortgage interest payments now receive a flat 20% tax credit, replacing the previous system where relief varied based on individual tax brackets, which could go up to 45%. 

Since April 2020, landlords have been required to pay tax on their entire rental income. In essence, landlords now need to pay tax on their entire rental income. However, the positive is that you can receive tax relief on your mortgage interest payments.

Other financial costs

Additional financial expenses related to your rental property can also be claimed, such as bank charges (like charges for running a dedicated rental income bank account) and accountancy fees (like the cost of professional accountancy services to manage your rental income and expenses). 

Travel expenses

Travel expenses for managing your rental property can be claimed. Mileage or travel costs for visiting your rental property, meeting with tenants, or attending property management meetings are some examples of what this could look like.

Advertising costs

Costs incurred in advertising your rental property to find new tenants are also allowable expenses for landlords. Costs for listing your property on rental websites or other advertising platforms are included in this. 

Ground rent and service charges

If you own a leasehold property, you can claim annual ground rent payments as well as maintenance fees for communal areas in leasehold properties. 

What is not considered allowable expenses for landlords?

It’s equally important to know what you cannot claim as allowable expenses as a landlord. These include the following: 

• Capital expenditures: Costs for improving the property beyond repairs and maintenance, such as adding an extension.
• Personal expenses: Any costs not directly related to the rental business, for example, private telephone calls not related to renting out your property.
• Fines and penalties: Any legal fines or penalties incurred.
• The full amount of your mortgage payments

Essentially, any costs that are not directly related to the maintenance and upkeep of your rental property cannot be claimed as allowable expenses for landlords.  

Keeping records

To ensure you can claim all your allowable expenses, it’s crucial to keep thorough and accurate records of any and every outgoing cost. Keep all of your receipts and invoices that are directly related to your rental property and maintain records of all bank statements, too. Equally, make sure that you keep a record of mileage logs if you need to claim travel expenses. 

Understanding allowable expenses for landlords can significantly impact your rental property’s profitability. By knowing what you can claim for and by keeping detailed records, you can ensure you’re making the most of the tax relief available to you. Remember to stay updated on any changes to tax laws and regulations that might affect your allowable expenses.

For more information on landlord insurance, contact our team of experts at CIA Landlords for the best quotes available!