By Sheelagh Jenkins, Senior Accountant at Hive Business
If you have rental property, there are certain expenses that you can claim and deduct from your rental income to arrive at the total that is taxable – these are known as allowable expenses. When your accountant asks you for details of expenditure related to your rental property, it is helpful to have an idea what these expenses may be, to ensure that you are not missing out on reducing your tax bill by failing to include something.
In broad terms, expenses must be ‘wholly and exclusively for the purposes of renting out the property’ and must be revenue rather than capital expenses.
What do these terms actually mean?
Here are some common examples of allowable revenue expenses:
- interest on the mortgage used to buy the property, although this has been restricted since 6 April 2017 with phased-in changes due to fully take effect from 6 April 2020. Note the relief is for interest only, not the full mortgage payment on a capital and interest repayment mortgage;
- water rates, Council Tax, gas and electricity;
- costs of services, including service charges, gardeners and cleaners;
- letting agency fees;
- accountancy fees;
- some legal fees for lease renewals;
- costs of advertising for new tenants;
- general maintenance and repairs, but not “improvements”;
- replacement of some domestic items (e.g. moveable furniture, fridges, freezers) in residential property.
Expenses would be classed as capital rather than revenue if they result in some improvement to the property that either wasn’t there before or upgrades an existing feature. Such expenditure is not allowable as a deduction for tax purposes.
The list above is not exhaustive and is only a basic guide – as always there are more detailed rules behind each type of expenditure, especially when it comes to maintenance, repairs and improvements. The best course of action is to keep full details of any expenditure incurred in relation to the rental property so that your accountant can assess what is allowable.
For further clarification and assistance, please do get in touch.