The last few years have seen some unfavourable changes for landlords in the way they pay tax. The pandemic has caused havoc for landlords and tenants alike, with confusion and acrimony mounting due to unpaid rents. The good news is, the rental market remains strong, and allowances for tax deductions can still make renting out properties rewarding and worthwhile.
With ever-changing legislation, it’s key to know your rights and allowances, especially if you manage your own accounts. Here’s an up-to-date list of everything you can claim back as a professional landlord, and how to go about doing it.
The complete, exhaustive list of allowable expenses for landlords in 2020 includes:
Bills and utilities. This includes gas, electricity, water, broadband, and council tax rates.
Ground rents and service charges where applicable, e.g. on apartment buildings.
Maintenance services such as gardeners and cleaners (if they are not included in a building’s service charges).
Administrative fees like agency, accountancy, and legal fees. Sadly, this doesn’t apply to costs involved in the purchase or sale of a rental property, like conveyancing or estate agency fees. This is because these are considered capital costs.
Insurance costs, including buildings, contents, and public liability insurance.
Repairs and replacements. This includes all types of necessary property repairs, replacement of domestic goods, and disposal of old ones.
Practical equipment for managing properties and placing tenants such as phone bills, office supplies, and advertising.
Motor expenses for traveling to rental properties. For the first 10,000 miles a year, you can claim 45p a mile. Thereafter, you can claim 25p. This is inclusive of fuel and maintenance. This is a lesser-known one, but there’s a catch – if you use a lettings agent, the agency premises are counted as the journey starting point, not your own residence.
Expenses that are not claimable for landlords include:
Tax on buy-to-let mortgages. This is the biggest and most recent change landlords need to be aware of. As of April this year, you may not deduct mortgage expenses from rental income in order to reduce your tax bill. It’s an unwelcome change, but all is not lost – it will now be taxed at the basic rate, meaning you can claim a tax credit based on 20% of your mortgage interest payments.
Any expenses of a capital nature. In other words, anything that will directly impact the capital value of your home, like large-scale renovations, loft conversions, or extensions. Any expense claimed must be revenue based only.
Wear and tear of furnishings. Previous laws allowed landlords to claim 10% of the net annual income for wear and tear. This is no longer the case. You can, however, claim back the expenses on the like-for-like replacement of ‘domestic items’ – things like beds, sofas, white goods, curtains, and kitchen equipment. There are some nuances to this one, and the keyword is ‘replacement’. The item must have already existed in the home, and become old or unusable, for you to claim this expense. You can’t claim back on new items you purchase, or on furnishing a rental property for the first time. Finally, if you replace an item with a significantly upgraded version, you may not be able to claim an expense on the entire value.
Important points to note when claiming landlord expenses:
It may go without saying for many, but it’s worth noting that any expenses you claim on must come directly and exclusively from the property you’re renting out – not from other properties like your own home or office, or other income-generating activities.
As a continuation of the above, if expenses come partly from your rental property and partly from another place (e.g. if you rent out a part of your private home), you must calculate how much comes from the rental proportion, and claim for that alone. A common example of this is heating and lighting costs for a building you both inhabit and rent out.
Another one that may go without saying, but it bears repeating: keeping receipts is vital for backing up expense claims. A missing one could mean an unfulfilled claim, and that’s money out of your pocket.
Some good news to finish on – anyone generating income from rental property can claim £1000 a year via the Property Allowance scheme in lieu of claiming expenses. This is often applicable if your expenses are particularly low, for example, if you rent out a part of your private home. Even better, if you jointly own a property with a business partner or spouse, each of you can make the claim.