If you have rental property, there are certain expenses that you can claim and deduct from your rental income to arrive at the ‘Profit’ figure that you pay tax on – 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 of 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. Note the relief is for interest only, not the full mortgage payment on a capital and interest repayment mortgage;
- Council Tax, water rates, gas and electricity;
- Letting agency and management fees;
- Accountancy fees;
- Service charges and ground rents;
- Some legal fees for lease renewals;
- Costs of advertising for new tenants;
- General maintenance and repairs, but not “improvements”;
- Costs of services, including wages of gardeners and cleaners;
- Replacement of some domestic items (e.g. moveable furniture, fridges, freezers) in residential property.
Expenses you cannot claim a deduction for include:
- The full amount of your mortgage;
- Enhancements or improvements to the property that either weren’t there before or upgrade an existing feature;
- Clothing;
- Personal expenses.
The lists above are not exhaustive – 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.
