You might have to file a Self-Assessment Return and pay tax dues on your earnings, if you rent out property. There are many expenses that you can claim against rental income profits, which will lower the amount of tax that you owe.
Expense claim is not about avoiding tax. It’s about making sure that you are paying the right amount.
We will be discussing the details of allowable expenses to help you understand what you can and cannot claim.
What are the expenses landlords can claim?
Landlords may deduct some costs related to rented property the Profit section of their Self-Assesment tax return. If you have £15,000 in rental income and your allowed expenses were £4,500, then you would only be subject to tax on £10,500.
HMRC has strict rules about what landlords are allowed to claim as expenses. To be considered a permissible expense for a landlord, the cost must only have been incurred in order to rent out the property. It is important to keep track of all your invoices and keep your receipts.
What expenses are allowed for landlords?
It can be difficult to determine what expenses you can claim in order to lower your landlord tax bill. HMRC has provided guidance to landlords, which we have summarized in this guide.
You can claim:
- Expenses for general maintenance and repairs
HMRC clearly distinguishes between property repairs and improvements. As long as the fixture is being repaired or redecorated, it can be considered an expense that HMRC allows. For example, you can’t claim to replace a granite kitchen countertop with wooden one.
- Utility bills
The costs of a variety of charges can be claimed back, including ground rent, sub-letting service charges, council tax and utility bills such as gas and electricity. If tenants are responsible for paying their utility bills, you cannot claim this cost.
- Insurance
All landlord insurance policies are allowed expenses. This covers buildings, contents, public liability, and any additional coverage you purchase to protect you against loss of rent.
- Charges for services
You can claim the fees of a contractor to do work on your rental property as an allowable expense in your tax return. If they are performing repairs, you can claim the cost of builders, cleaners, and gardeners. Improvement costs are not allowed.
- Travel costs
Allowable expenses include travel and vehicle operating costs for your rental property. This includes petrol, public transport fares, vehicle tax, insurance, and vehicle taxes. You can’t claim for regular or private travel. It must be directly related to the rental of your property.
- Fees for professionals
Allowable expenses can include professional services such as interior design, conveyancing, and accountancy. For debt collection and other legal issues relating to property, you can also claim solicitor fees.
- Direct running expenses
Also, you can claim general running expenses like your phone bill and broadband bill as well as office equipment and stationery. You can also claim expenses related to marketing, including fees for letting agents, photography, and advertising.
You cannot claim for:
- Capital expenditure Purchases, extensions and furnishings costs are not allowed.
- Clothing cannot be claimed as an expense. You can’t claim a suit you purchased to attend a meeting about your rental property on your tax return.
- Personal expenses not related to your rental property cannot be claimed against your rental profits – this includes your private telephone bill.
Property income allowance 2021
If you make less than £1,000 per year renting out a property as a landlord you don’t have to inform HMRC. You have tax-free property allowance for £1,000. If your rental property income in a year is in range £1,001 to £2,500, you should contact HMRC. You will need to file a Self-Assessment return if your income is:
- after deduction of allowed expenses, £2,500 to £9,999
- before allowable expenses, £10,000 and more
Simplified expenses for self-employed landlords
Simplified expenses allow you to calculate certain allowable expenses using flat rate rates instead of working out individual costs. The government’s simplified expense checker can help you find the flat rates.
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