Allowable Expenses for Landlords

In the UK, landlords are required to abide by certain laws and regulations. One of the most important requirements is paying tax on the profit made from renting out a property. A landlord can reduce their tax bill by deducting allowable expenses from their rental income.   In this article we explain everything you need to know about allowable expenses, including which expenses are considered to be allowable for landlords. 

What are Allowable Expenses for Landlords?  

As a landlord, you will inevitably spend money running and maintaining your rental property. Some of these expenses can be costly, leaving a considerable hole in the pockets of landlords. However, the good news is that landlords can claim back many of these costs against their rental income as allowable expenses.  An allowable expense is classed as anything which you have spent wholly and exclusively for the purposes of renting out the property. The key point to keep in mind is that the expense will not be classed as fully allowable if the expense has gone towards any purpose which is not in keeping with the renting out of the property.  For instance, you could claim the cost of a lawn mower if it has been bought solely for the purpose of mowing the lawns at the rental property. However, if this lawn mower is used in your garden too, it could not be claimed as an allowable expense. 

What Expenses Can I Claim as a Landlord? 

As a landlord, you may be wondering which expenses might be classed as allowable. Some examples of expenses which landlords can offset against their rental income include: 

• Anything bought for the sole purpose of use in the rental property 
• Utility and tax bills including water, gas and electric, as well as council tax (if they have been paid by the landlord) 
• General maintenance repairs 
• Cost of general maintenance services such as wages for cleaners and gardeners 
• Letting agent and property management fees 
• Any accountant fees 
• Rents if you’re sub-letting, ground rents and service charges 
• Landlord insurance 
• Costs incurred from phone calls and advertising for new tenants 
• The cost of mileage to inspect the property and carry out repairs, or collect rent 
• Courses which enhance your existing knowledge as a landlord 

Can Landlords Claim for Maintenance Repairs? 

Yes, it is possible for landlords to claim maintenance repairs as allowable expenses against their rental income. This only applies to repairs though, not to any improvements.   Some of the maintenance work which landlords can deduct from their rental income includes:  

• Repairing electrical faults 
• Repairing water and gas leaks 
• Repairing burst pipes 
• Repairing roofs and floors 
• Repairing internal and external walls 
• Replacing broken windows, doors, roof slates and gutters 
• Treating damp or rot 

Expenses may also be allowable for replacing radiators, boilers and other existing fittings, as well as for re-pointing and stone cleaning. Any fees which have been incurred towards repainting and redecorating a property to restore it to its original condition can be claimed too.   Also, the cost of hiring any equipment which was used to conduct repairs or replacements can be claimed as an allowable expense. 

What Can I Not Claim as an Allowable Expense? 

Some of the expenses which are not deemed to be allowable include: 

• Personal expenses 
• Private telephone calls which were not related to the property rental business 
• Any clothing which was primarily bought for business purposes 
• The full amount of your mortgage payments

Is it Possible to Claim Part Expenses? 

Landlords may incur costs for something which is partly for the purposes of renting out a property. In this situation, the landlord could claim a part expense. They need to prove that a definite proportion of the incurred expense was ‘wholly and exclusively’ for the purposes of renting out the property. 

Can I Receive Tax Relief on Mortgage Payments? 

If you increase a mortgage loan on a buy-to-let property you might be able to claim the interest on the additional loan as a revenue expense or get relief against income tax. You need to be able to prove that the additional loan is wholly and exclusively for the purposes of renting out the property.  Any interest on additional borrowing which is above the capital value of the property when it became a rental property under your ownership is not tax deductible. Can this please be checked its up to date as it changed in 2020 

What is the ‘Wear and Tear’ Allowance? 

The wear and tear allowance enabled landlords to claim for the wear and tear of furnishings in fully furnished rental properties, including carpets, beds and cookers. It allowed landlords to claim a maximum of 10% of the net annual rent each year.  The wear and tear allowance was replaced by the Replacement of Domestic Items Relief in April of 2016. Landlords can claim tax relief on the amount they spend to replace any item which is deemed as domestic by HMRC.   Expenses under the Replacement of Domestic Items Relief are applicable for unfurnished, part-furnished and fully furnished properties.  This relief can be used towards the cost of: 

• Moveable furniture, including beds and wardrobes 
• Furnishings, including curtains, carpets and chairs 
• Household appliances, including fridges, dishwashers and washing machines 
• Kitchenware, including crockery and cutlery and other kitchenware 

You can only claim for items that are like-for-like replacements and of similar value. The items must be solely for the use of the tenant within the residential property.  Tax relief against rental income is given for the cost of the replacement item and any costs of disposing the old item.   However, the cost of any element of improvement of the item cannot be deducted from your rental income. For instance, if you pay £400 for a new living room chair which is the same as the one you are replacing, you can claim a deduction. However, if you choose to buy a more expensive model which costs £500 you can only claim £400 as a deduction, with no relief on the additional £100.   A new item is classed as an improvement when: 

• It’s not the same or substantially the same as the original item 
• You upgrade the quality of the material of the item  
• The functionality of the item is substantially different 

Can Landlords Claim for Capital Expenditure? 

Any money spent towards improving or enhancing the property is classed as a capital expense and cannot be claimed as an allowable expense. This includes the cost of building an extension to the property, making any renovations and any other costs which alter, improve or upgrade something that was existing.  However, it is prudent to keep records of any home improvements which you have made. This is because you might be able to set them against Capital Gains Tax in the future should you sell the property.  

How to Report Allowable Expenses as a Landlord 

You need to contact HMRC if you have taxable profits from the property which you rent out. HMRC will inform you of what you need to do in order to officially declare your profits. You will usually be asked to complete a Self Assessment tax return. You can report your allowable expenses when you file your tax return.  You must treat all receipts and expenses as one business, even if you have more than one UK property that you are renting out. To work out your profit you need to add all your rental income together and calculate your allowable expenses, then minus the expenses from the rental income.   It is prudent to keep hold of your receipts and bills that have gone towards allowable expenses. This will make reporting your allowable expenses easier if HMRC asks for evidence of your expenses.  The rate of tax that you pay depends on a number of factors including your total income for the year from employment, self-employment and rental income. 

Landlord Services Offered by Chancellors

Here at Chancellors, we provide a range of services to help landlords manage their rental properties. Our Managed Service is the ideal option for landlords who are looking for a comprehensive service that takes care of all the necessities. With this service, we will take care of all necessary gas and electric safety checks in the property, carry out references of tenants and keep on top of property maintenance.  We also provide expert guidance on allowable expenses for landlords, and the changes you could make in the property which would qualify as deductible against rental income.   To find out more about our full range of services, please do not hesitate to contact us today. Also, you may wish to read our guide on how to become a landlord.