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Reduce your tax bill by making sure you claim for all allowable expenses on your tax return for your Buy to Let property.
Here are some of the typical allowable expenses which many Buy to Let Landlords incur:
Maintenance and Repairs
You should be able to deduct most of the money you spend keeping your buy to let property in good order. Typical allowable expenses are:
- repairing water or gas leaks, burst pipes
- repairing electrical faults
- replacing broken windows, doors, gutters, roof slates/tiles
- repairing internal and external walls, roofs, floors
- repainting and redecorating (but not improving) the property to restore it to its original condition
- treating damp or rot
- re-pointing, stone cleaning
- hiring equipment to carry out necessary repair work
- replacing existing fixtures and fittings, such as radiators, boilers, water tanks, bathroom suites, and kitchens, but not electrical or gas appliances
If you pay a service charge to cover the running costs of a rental property then this is also allowable against your rental profits.
Look out, you cannot claim for costs which may be classified as Capital Expenses – these are things which improve rather than maintain your property. For example, an extension or replacing the carpet.
Note: if you have been a landlord for several years now, wear and tear allowance has now been abolished. Find out more here.
Cost of Replacing Furniture & Furnishings
If you incurred any costs for replacing furniture, furnishings and appliances provided for tenants use then these items will be tax allowable. Some typical examples are:
• Dining furniture
• Soft furnishings
• Kitchen appliances
Buildings and contents insurance are allowable expenses and can reduce your taxable rental income.
Until 5 April 2017, you are able set off the interest element of any mortgage payments made against rental income. You should be able to find this figure on your mortgage statement. From 6 April 2017 this interest relief is set to be removed and you will be able to claim a percentage of the mortgage interest you have paid until the relief is removed in full. You can claim as follows:
Tax Year 17/18 – 75%
Tax Year 18/19 – 50%
Tax Year 19/20 – 25%
Tax Year 20/21 and beyond – 0%
Find out more here.
Any costs paid for letting and managing your property are allowable for tax purposes. So if you paid your agent any fees, keep details of these payments ready for your tax return.
If you chose however to advertise the property yourself to find your own tenants, then these costs are equally allowable as they are a direct cost of letting out your rental property.
You can claim for the cost of your accountant preparing your rental accounts.
If you pay legal or professional fees in relation to collecting debt, then these are tax allowable. However the legal fees in relation to the sale/purchase of your property are not but these will be taken into account as part of calculating your capital gains tax, so it is worthwhile keeping hold of these invoices.
If you pay ground rent on a leasehold buy to let property, then you can also claim for this expense against your rental income profits.
Water rates, council tax, gas and electricity
If you take responsibility for any of these items as part of your tenancy agreement, then again you can claim for these expenses as they are direct costs of owning the buy to let property.
If you spend money marketing your buy to let property when searching for new tenants, for example online or in a magazine/newspaper, then again these are tax allowable.
Travel costs getting to and from your property to check on it or visiting agents can be claimed. If you use your car, your helpful accountant will probably talk you through making a mileage claim for you (this is 45p for the first 10,000 miles and 25p thereafter).
Unpaid rent is considered a bad debt, which is a tax allowable expense. The rent must remain unpaid for 6 months and you should have taken appropriate steps to chase up the unpaid rent. But if it still remains unpaid then you are entitled to deduct this against your rental income, as you can with any eviction costs.
Use of Home
If you work from home managing your properties, then you are entitled to claim an amount to cover the cost of you using your home as an office. The simplest way to do this is to claim the fixed amount set by HMRC which is currently £4 per week. It is also possible to claim for a proportion of your home and bills, but it is advised to seek professional advice before doing so.
These are some of the common expenses Landlords may pay for. Knowing what expenses are allowable and keeping a track of all the expenses you may incur will help you understand how much profit you make on your Buy to Let property, as well as reduce your income tax bill.
Anita is a Chartered Accountant with over a decade of experience taking self employed business owners from financially confused to business savvy.
She is the creator of the ‘Go Self Employed’ website, which her corner on the internet where she makes self employment less terrifying.