What tax can you claim back on a rental property?

Whether you only own a few buy-to-let properties or already have a letting business with multiple properties on your books, the common aim will be to make profits. So, it’s hardly surprising that many landlords are interested in the tax you can claim back on a rental property through allowable expenses.

At CIA Landlords, we are specialist landlord insurance brokers, and it’s therefore our job to understand what landlords go through, including what allowable expenses they are entitled to claim.   Here, we explain everything you’ll need to know about allowable expenses to help you get your rental property’s finances in order.

What are landlord allowable expenses?

Landlord allowable expenses are expenses you can deduct from your rental income when you are working out your taxable rental profit. The condition is that these expenses must be wholly and exclusively for the purposes of renting out the property.

Types of allowable expenses for landlords

Claiming allowable expenses can help to reduce your tax bill. Examples of the types of allowable expenses that landlords can claim tax back on include:

• General maintenance and repairs to the property
• Water, gas, electricity, or internet bills
• Council tax
• landlord insurance, including landlord buildings insurance and contents
• The costs of providing services, including gardeners and cleaners
• Letting agent and management fees
• Legal fees for lets of a year or less
• Accountant’s fees
• Ground rents and service charges
• Direct costs such as phone calls, stationery and finding new tenants
• Vehicle running costs including mileage rate deductions for your rental business motoring costs

Council tax, ground rent, and utility bills are allowable expenses if you are responsible for paying them as the landlord as per the rental agreement. For instance, student landlords always have to pay council tax, since student tenants are exempt from it. However, it all depends on what the tenancy agreement stipulates. If the tenancy agreement in question says that tenants are responsible for paying council tax, ground rent, and utility bills, then landlords will not be able to use them as allowable expenses.

Expenses that aren’t allowable

HMRC have strict rules regarding what counts as allowable expenses, and what expenses are excluded. Please in mind that you cannot claim back the following costs on a rental property:

• Capital expenditure: This includes buying a major renovation work such as a loft conversion/extension that increase the value of the property and the cost of furnishings
• Personal expenses: Anything that doesn’t relate to the rental property can’t be claimed. This includes things like your private phone bill.
• Clothing: Clothing isn’t an allowable expense under any circumstances. If you bought clothing to wear to a meeting with your tenant/letting agent, this still cannot be claimed
• Interest payments on buy-t0-let mortgages: – Interest payments on landlord’s mortgages are no longer an allowable expense, but you can claim back 20% of annual interest payments using a tax credit.

Replacement of Domestic Items Relief

There are some more costs that landlords can claim back that don’t fall under ‘allowable expenses’. This is the Replacement of Domestic Items Relief. The relief typically covers things like:

• ​​Appliances like fridges and washing machines
• Moveable furniture like beds and wardrobes
• Carpets
• Curtains
• Kitchenware such as crockery and cutlery
• TVs

There are some conditions you must follow. Firstly, the cost must have been incurred for replacing one of the domestic items listed above. With an emphasis on replacement – the old item cannot continue to be used in the property. You can’t claim for purchasing a second washing machine for your tenant if they are still planning to use the old one, for example.

To claim the full amount of the replacement item, it must be a like-for-like with the original. If the new appliance is an upgrade and costs a lot more than the original, you would only be able to claim back a portion of the cost. Finally, the new item must only be used by the tenants of the property.

How to claim allowable expenses

When you complete your Self-Assessment tax return, you should state the total amount of allowable expenses for the tax year. You won’t need to provide receipts straight away, but be aware that HMRC can ask you for evidence in the future and you can be fined for presenting false information.

Because of this, we recommend that you keep receipts for six years after you’ve submitted your tax return. HMRC have the right to investigate your landlord finances during this time, so you should have the right evidence prepared.

We hope that you’ve found our article useful. In our advice centre, we cover topics such as damaged property, property access and more. Get in contact by phoning us on 01788 818 670 or dropping an email to info@cia-landlord.co.uk