What should I be claiming back to help soften my expenses as a Landlord?
As a general rule, landlords can claim the expenses of running and maintaining their property, which reduces their tax bill.
Some examples of allowable expenses you can claim are:
- Water Rates
- Council Tax
- Landlord Insurance (costs of services)
- Wages for Gardeners or Groundskeepers
- Cleaner for communal areas
- Letting Agents fees
- Legal fees for lets of a years length or less
- Accountants fees
- Ground Rents
You can also claim some of the interest on buy-to-let mortgages.
As a landlord, you cannot deduct expenses of a capital nature from the rental income you earn. That means, you can’t deduct the cost of building an extension, or renovating a home that’s in a rundown state. You may, however, be able to use the cost of these investments to reduce your capital gains tax bill when you come to sell your rental property.
If the property or properties you let out are fully furnished, you used to be able to claim for wear and tear of furnishings, such as cookers, carpets, beds and televisions. The wear and tear allowance allowed you to claim a maximum of 10% of the net annual rent (income less expenses) each year. However, this has now changed. The government now allows you to claim tax relief on anything you spend on replacing what it labels as a ‘domestic item.’ Crucially, this only applies to items you are replacing. You can’t claim tax relief on the actual cost of kitting out a property for the first time with furniture or appliances. It can only apply when an item is genuinely replaced and no longer used in the property.
What qualifies for the ‘replacement of domestic items relief’?
- Replacement beds, carpets, crockery or cutlery (although we strongly advise never to supply these types of items from the offset of the tenancy)
- Replacement appliances
- Replacement sofa’s
It’s worth remembering that you can only claim for a like-for-like replacement. If, for example, you bought a new fridge worth £600, but the cost of replacing your old fridge with a very similar one was only £400, you’d only be able to claim £400 relief. You can also claim for the cost of disposing items (usually electrical goods).
How does the ‘replacement of domestic items relief’ work?
You can deduct the cost of replacing domestic items from your rental income tax when calculating your net profit for the year, on which you pay tax. You replace a number of items in your property, ready for some new tenants. These include curtains for £200, a washing machine for £250 (which also costs £50 to dispose of) and a new bed for £400. The total relief you can claim for is £200 + £250 + £50 + £400, which amounts to £900. This can be deducted from your annual rental income to work out your tax bill at the end of the tax year.
If you would like anymore information on the above, please do not hesitate to contact us at our branch in Sutton.
Read more: https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/allowable-expenses-and-allowances-atdn93l9wyqp – Which?