Allowable landlord expenses
With more and more people becoming accidental or unintentional landlords due to a change in personal circumstances, this month with self-assessment season just around the corner, we thought it would be good to look at what the allowable landlord expenses are (correct for 2023/24).
Being a landlord isn’t cheap – there are many different types of costs involved in renting out a property. Manh of these costs can be claimed as allowance landlord expenses to help reduce your income tax bill.
The list below may not be exhaustive and applies only to landlords who have not set up a limited company for their buy to let property.
The basics of allowable landlord expenses
Firstly, the expenses must be wholly and exclusively for the purpose of renting out your property. You may incur costs which are both private use and landlord use, for example, fuel or mobile phone. In these cases, you must work out the costs relating to your activities as a landlord because you cannot claim the private part of the cost. It can get tricky to work this out, so an alternative approach is to use the flat rate deduction.
Allowable landlord expenses do not include any personal costs so you can’t claim for buying a suit to use when you show potential renters around your property for example or travel costs for viewing potential new properties which you then do not purchase. The rules can be a little complicated, so it’s always a good idea to consult an accountant who specialises in preparing self-assessment tax returns for landlords.
You claim your allowable landlord expenses on your annual self-assessment tax return (also known as the SA100 form) which will also detail your rental income, any other income such as employment and other tax reliefs you are entitled to.
What allowable landlord expenses can you claim?
Many of the costs incurred from renting out your property are allowable landlord expenses – here’s a list of common costs that are claimable.
Using an accountant to manage your tax return as a property landlord ensures you reduce your tax bill by claiming everything allowable and the cost of the accountant is included in the allowable list.
Any legal costs that you incur relating to leases which are a year or less, or renewing a lease of under 50 years are allowable landlord expenses. However, you cannot claim legal fees when letting your property for the first time or for leases that last for more than a year. If you need to hire a solicitor to help deal with a landlord/tenant dispute, you can also claim these legal fees.
Letting and advertising fees
If you use a lettings agent to help you find a tenant, these costs are fully deductible from your rental income. If you pay to advertise your property for rent, you can also deduct this cost.
Managing agent fees
If you pay a property management company to deal with the admin of having a leasehold property, these fees are also deductible.
It’s wise to have insurance cover for your property in case of theft, malicious or accidental damage and to cover any claims that the tenant might bring against you.
What does landlord insurance cover?
Landlord insurance can cover for your buildings, personal contents that you provide such as furniture, including accidental damage. You could also opt for specialist boiler cover. Tenant default insurance can cover your rent for a period if your tenants fail to pay. Property owners’ liability insurance covers compensation claims made by a tenant or visitor for injury or damage related to your property. Finally, you might opt for legal expenses insurance to cover the cost of evicting a tenant from your property. All these insurances fall under allowable landlord expenses.
Ground rent & service charges
Service charges and ground rent on leasehold properties can easily add up to around £2-3K a year. You can deduct these costs too.
Communal cleaning and gardening
If your rental property is a flat, you may have shared areas which need maintaining such as common parts (hallways, staircases, lifts) and gardens. The costs of maintaining and cleaning these areas is an allowable landlord expense.
Generally, tenants are responsible for paying council tax on rented properties but in some circumstances, it falls to the landlord. Don’t worry though as you can deduct this cost from your rental income on your tax return.
Water, gas and electricity costs when the property is between tenants are allowable. Utilities incurred by a tenant while in your property are the tenant’s responsibility to pay and are therefore not allowable costs for your tax return.
Landlord association subscriptions
There are membership organisations that support landlords. The cost of these groups is a fully deductible expense.
If you attend a course to increase your knowledge about being a landlord, this cost is deductible.
You can claim the costs of phone calls when dealing with tenants, insurance companies, lettings agents or other service providers related to renting your property.
Stationery, postage, printing and so on needed to carry out your activities as a landlord are also allowable.
Costs associated with travelling to and from your rental property such as fuel, parking or public transport costs are claimable as long as you only claim the portion that relates to your activities as a landlord. You cannot claim any parking or speeding fines you incur though.
You can claim the cost of replacing a damaged window if it was not the tenants fault e.g. it was vandalism or due to weather conditions. You cannot claim the cost of replacing all the windows to double glazing for example, as this is classed as a capital cost (see below for capital items)
If you need to replace tiles or guttering, you can include the cost of these repairs as an allowable landlord expense.
You can also claim the cost of brickwork reporting or external wall cleaning.
If you have a flood in your property caused by a burst pipe, you have to call a plumber, gas expert or electrician to make your rental property safe, you can claim these costs.
Annual maintenance, repairs or a like-for-like replacement boiler are all allowable landlord expenses.
You can include the cost of replacing a toilet, shower, washbasin, kitchen sink, taps and kitchen cupboards if they are on a like-for-like basis. However, a complete bathroom or kitchen remodelling project is classed as capital expenditure. Like-for-like means that the new item cannot be a significant upgrade from the existing item. If you do replace an item with something that costs three times as much as the original, you can only claim one third of the cost.
Redecorating your property
Redecoration is classed as property maintenance rather than improvement and is therefore an allowable expense for landlords. Keeping your property well maintained is an essential cost for continuing to be able to rent it out. You may need to redecorate between tenants or every few years or perhaps after you’ve deal with a damp issue or accidental damage to your property.
Damp can be a common problem in many properties, especially older ones. It doesn’t matter whether its rising damp, condensation damp or penetrating damp, the costs of treating it can be claimed.
You can claim costs associated with moving or disposing of furniture or appliances from your rental property.
Items you cannot claim as an allowable landlord expense
There are some costs which you cannot deduct to reduce your tax bill. These include:
You cannot claim the interest from your mortgage as an allowable deduction but you will be entitled to a 20% tax relief applied to your mortgage interest payment.
Mortgage arrangement fees
If you re-mortgage whilst you are a landlord, unfortunately you cannot claim this cost either.
Substantial property improvements such as adding a loft conversion, putting in a new kitchen or building an extension are not allowable costs. You may be able to claim capital expenses against Capital Gains Tax if you sell the property. That’s why it’s important to keep detailed records of all capital expenses.
Landlord property tax allowance
There is a landlord property tax allowance of £1,000 which means that if your rental income is less than £1,000 per year, you are not required to complete a tax return. If your rental income exceeds £1,000, you can choose to deduct the £1,000 allowance rather than itemising out your expenses. This is only beneficial if you expenses are less than £1,000 in total.
Making sure your tax return includes all your allowable landlord expenses
It’s not long until the self-assessment deadline which means if you haven’t already done your tax return for your rental property, you don’t have long to get it sorted. If you’re in a flap over it, give us a call on 01322 250001 for a no-obligation, free chat about how we can help you meet your HMRC obligations this tax season.