Mark Dawson, senior partner at AST Assistance, has over twenty years’ experience dealing with landlord and tenant issues.
Landlords are responsible for paying taxes on the revenue generated by their rental properties. A landlord’s rental income profit is calculated by subtracting “allowable expenditures” from the rental income.
Rental income is the rent you receive from your tenants, and working out your rental income correctly is vital to stay compliant with tax regulations.
You must pay tax on any profit you make from renting out your property – this tax amount will depend on how much profit you make and your circumstances. Simply, the profit is calculated by deducting expenses and allowances you can claim away from your rental income.
Importantly, whether you handle one or multiple properties, you must manage your portfolio as a single business and combine all of your rental revenue and permissible costs.
What expenses can I deduct?
If you have paid for them, you can deduct the following expenses:
General property repairs and maintenance
You may claim on fees made for property repairs, such as the fee to replace a faulty sink. However, no expenses may be claimed for upgrades, such as replacing wooden with marble countertops.
Tax, water, gas and electricity fees
Tax is attributable to the property, and therefore qualifies it in some circumstances as an allowable deduction. You should check with your local council on the appropriate rent; for example, if you qualify for business rates or a standard Council Tax charge. Energy fees may also be assessed and deducted if you charge for these within the rent fee.
Insurance, including building, contents and public liability
Landlord insurance falls under allowable expense. You should shop around for the most appropriate insurance type, including contents, liability, rent guarantee, and home emergency.
Service fees, such as gardeners, letting agents, and management
Any fees incurred that are wholly for the purpose of the managing and upkeep of the rental property are considered allowable expenses, and as such, are likely considered tax deductible.
Legal fees for lets under a year, or for lease renewals less than 50 years
Legal fees for lets under a year, or for lease renewals less than 50 years are subject to tax deductions. Any fees outside of these parameters will not be deductible, so it is vital that you seek advice on what is eligible for a tax deduction before claiming.
If an accountant’s fees are directly and solely related to the rental property, you may claim a tax deduction. You cannot, however, claim fees associated with the purchase of the property.
Rents (if sub-letting) and service charges
You can claim back the fees on rent, ground rents and service charges – but only if you are responsible for paying them. If your tenant is responsible for paying utility bills, you may only be able to deduct the cost when the property is empty.
Advertising for new tenants
You may claim back for the advertising costs when looking for a new tenant. On the other hand, permanent signs are considered capital costs, and do not qualify for a tax deduction.
Vehicle expenses, including mileage deductions
The cost of a vehicle is not tax-deductible, but reasonable costs of travelling are. You can claim the standard mileage rate deduction of 45p per mile for the first 1,000 business miles, and 25p per additional business mile. These are calculated on a tax-year basis.
What expenses can I not deduct?
Even if you made the payment, you cannot deduct tax on the following expenses:
- Your full mortgage payment amount – only the mortgage interest payment can be deducted
- Personal phone calls not relating to the rental business
- Personal expenses