The government recognises letting your property as being a business transaction. As such, certain elements of it are tax-deductible as ‘allowable expenses’.
Here is a brief guide to what you may, or may not, claim back to increase your profit.
Mortgage Fees Broker and arrangement fees are tax deductible, claimable in the year the mortgage was arranged. Any incidental costs associated with taking loans are claimable as expenses.
Mortgage Interest All interest paid on your mortgage can be used to offset your tax bill. In the case of interest-only mortgages, your whole monthly repayment is tax-deductible. In the case that your income roughly equates to your repayment, you’ll be exempt from income tax on the property. (Some landlords keep their property mortgaged even when they can afford to pay it off, just to benefit from this tax break)
Letting Agent Fees If an agent finds tenants for, or manages your property, you’ll probably pay between 10-15% of monthly rental income in fees. These are all claimable.
Securing Tenants If you rent your property privately, you can claim on all the following: advertising for tenants, purchasing a tenancy agreement, credit checking, referencing, deposit protection, and professional inventory costs.
Building and Contents Insurance Premiums These can protect the building, loss of rent, and your liability as a landlord, plus you can add extra cover, too.
Maintenance and Repairs Most of these are tax deductible, but cannot be claimed if the house is not fit for purpose. For example, fixing white goods is claimable – building a conservatory is not!
Furniture If the property is furnished you can claim back ‘wear and tear’ allowance (roughly 10% annual rent) or the exact cost of replacing individual items. You cannot claim the cost of furnishing the property in the first place.
Ground rent and Service Leaseholders will usually pay ground rent to the freeholder, and service charges are common. They include maintenance, heating and lighting, but can extend to security. You can claim back on any on-site services such as gardening and electrical costs, too.
Council Tax and Utility Bills If you pay any council tax or utility bills that a tenant would usually pay, you can claim the whole cost. You can also claim these costs during void periods.
Others Minor costs such as phone calls, stationery and cost of travel between properties (for purposes of the rental business) are claimable expenses.
With all this in mind it pays to keep all your receipts and to keep an eye out on all the costs you’re incurring as part of your property management
For further information on how to effectively run your let as a business, and to find out how to be as professional as possible, please contact your local Martin & Co office today.