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8 Overlooked Allowable Expenses For Landlords

In the realm of property management, landlords have many responsibilities, from tenant selection to routine maintenance and upkeep. Amidst the duties, it is easy for landlords to overlook avenues for financial relief. Understanding allowable expenses is a crucial strategy for landlords to maximise their investment and operate a profitable buy-to-let portfolio. Our comprehensive blog will explore the top overlooked allowable expenses landlords must know to claim every allowable tax deduction accurately.

  • What Are Allowable Expenses?
  • Capital Vs. Revenue Expenses for Landlords
  • 8 Must-Know Allowable Expenses
  • Expenses That Are Not Allowable
  • How to Claim Allowable Expenses
  • Landlord Allowable Expenses FAQs

What Are Allowable Expenses?

Allowable expenses can be defined as costs that are directly related and essential to running a business. These costs can be claimed as tax deductions, reducing your overall Income Tax liability. Whether you are a seasoned property owner or just stepping onto the property ladder, it is essential to determine which expenses are tax-deductible to reduce how much you pay on your profits.

Capital Vs. Revenue Expenses for Landlords

Landlords need to understand the difference between capital and revenue expenses on their rental property to understand what precisely allowable expenses are.

Capital Expenses

These are usually large, one-off purchases such as substantial renovations, improvements, and first-time furnishings. These expenses are not tax-deductible; however, keeping records of these expenses is good practice as you may be able to claim relief on Capital Gains Tax if you decide to sell the property.

Revenue Expenses

Revenue expenses are the operational costs essential to keep your rental property running smoothly. These expenses can be claimed as allowable expenses.

8 Must-Know Allowable Expenses

As of April 2020, the government has introduced changes to buy-to-let tax relief as per the Section 24 tax changes. These altercations now mean landlords can no longer deduct any mortgage expenses to reduce their tax bill. This emphasises the vital importance of landlords seeking out as many different avenues as possible that will provide financial relief. Below are the top allowable expenses that landlords must be aware of to maximise their investment:

Travel

Travel costs related to the management and running of your business are allowable expenses. As a landlord, you can claim petrol, vehicle tax, insurance, and public transport fares associated with the running of your business. You cannot claim for regular travel expenses; for example, if you use your car to get to and from your rental property 15% of the time, you can claim 15% of the related expenses.

Insurance

Landlords can claim insurance costs as allowable expenses for their buy-to-let property. All landlord insurance policies are classed as allowable expenses, from building, contents, and public liability insurance to rent guarantee and protection insurance.

Marketing

The services you use to market your rental property to prospective tenants can be claimed as allowable expenses. These services include but are not limited to photography, videography, letting agents, and corresponding marketing materials.

Professional Fees

The fees you pay for professional services to help with the behind-the-scenes running of the business, such as solicitors, accountants, and bookkeeping, are considered allowable and should be claimed as tax-deductible expenses.

Service Fees

If you recruit a specialist to carry out maintenance work on your rental property, you can claim their charges against tax. This includes charges from various services such as gardeners, cleaners, carpet fitters, window cleaners, decorators, plumbers, and electricians. It is important to remember that their work can only be claimed against if they have carried out repairs rather than overall improvements.

Maintenance and Repairs

There is a distinct difference between property improvements and general maintenance and repairs, as per HMRC guidelines. The cost of redecorating or fixing a broken furnishing can be claimed as an allowable expense, as long as it is a like-for-like repair or replacement. When making claims for maintenance and repairs, you can claim for the materials used and any fees paid to specialists who carried out the work.

Tax, Bills, and Licences

If you are responsible for paying property costs such as council tax and utility bills, as a landlord, they are classed as allowable expenses. However, in some cases, the tenants are responsible for these expenses, so you can only claim for these expenses while the property is vacant. Expenses exclusively for the property, such as an HMO licence or gas and electricity certificates, can be claimed against your taxes.

Property Management Fees

Many landlords choose to hand over the control of their property to a property management company. Property manager responsibilities include but are not limited to tenant selection, rent collection, maintenance and repairs, tenant contracts, and deposit handling. The fees incurred from a property management company can be claimed as tax deductible. 

Expenses That Are Not Allowable

There are several expenses that you cannot claim on your tax return:

  • Personal expenses that do not relate to the rental property, such as a personal phone contract.
  • While you may purchase clothes to wear to a meeting relating to your rental property, clothing is not an allowable expense.
  • Previously, landlords could deduct all interest payments on buy-to-let properties; however, the buy-to-let tax relief has been phased out and replaced with a tax credit scheme. Landlords can now only claim 20% of the annual interest payment as a tax credit.
  • Restoration projects or significant improvements that bring a property to a habitable standard cannot be claimed on your tax return.

How to Claim Allowable Expenses

It is necessary to keep a record of all of your allowable expenses for the tax year so that you can add them up and include the total amount on your Self-Assessment tax return. You will not be required to submit receipts at this initial stage, but you must keep accurate records. HMRC can later ask for evidence, and you can face a fine if you submit incorrect information and do not have the means to prove your claim.

 

HMRC can investigate landlord finances within 6 years of filing your tax return. This means it is vital for you to keep your receipts for 6 years. Keeping the original receipts is optional, as HMRC can accept digital copies of your records to evidence your claim. Invest in accounting software to keep track of your finances. Explore how you can claim your allowable expenses through the GOV.UK website that details all relevant information for landlords.

 

Landlord Allowable Expenses FAQs

 

Do I need to declare my rental income?

You must declare the gross rental income and then claim your allowable expenses. It is the net profit that is then taxable.

How does the 20% tax credit work for landlords?

Since April 2020, all buy-to-let mortgage holders must pay tax on their rental income, but they will receive a tax credit worth 20% of their mortgage interest payments.

Are property management fees tax deductible?

Yes, fees associated with the work carried out by property management companies are tax deductible, so they should be claimed on your tax return.

Choose LevelUp As Your Property Manager 

At LevelUp, we are committed to making your journey as a property owner run as smoothly as possible. We endeavour to assist landlords by providing a full property management service that enables them to maximise their investment. Our expert team can advise on any allowable expenses you may be overlooking to help reduce how much you will pay on your profits. Sounds good, doesn’t it? Contact our friendly team today for more information on how we can help.

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