If you make an income from renting out a property, then you’ll need to pay income tax on the profits. But did you know that as a landlord of a buy-to-let property, you can claim allowable expenses against rental income?
While there are many factors to consider when claiming allowable expenses, it can be very beneficial and save you money when doing your tax return. This article will explain what’s included in these allowable expenses, how you, as a landlord, can manage these expenses and the best practices for claiming expenses.
An allowable expense is a purchase made to keep a business running efficiently. For landlords, these expenses can be deducted from rental income, meaning you won’t have to pay tax on them.
What is the best way of keeping record of your expenses as a landlord?
Working out expenses as a landlord can be a tricky and time-consuming process. Keeping organised and staying on top of your allowable expenses is the best way to ensure you are the most tax efficient you can be while utilising all available resources.
Additional tips can include:
- Knowing what you can claim tax relief on
- Keeping a clear record of all required documents (receipts, invoices, transactions and any additional records)
- Finding a tax software that suits you
- Staying up-to-date on changes to tax laws
- Speaking to your accountant
It is essential to keep your records stored for a minimum of 5 years after the tax return deadline for each new tax year. This will save you from incurring penalties. More information can be found on the GOV website.
Is there an accounting software that can record expenses for landlords?
Modern-day technology makes life much simpler for landlords to manage their accounting and finance. If you find keeping on top of your expenses to be laborious, then a great piece of software you can use is Xero.
Xero is an online cloud-based accounting software to support small businesses with finance and accounting.
If you’re looking for efficiency, then Xero might just be what you need to help you manage your property income. At Spotlight, we are a modern firm of Xero experts, meaning that we can work with you to ensure you have all of the information and support you need to complete a tax return.
Take a look at our guide on making tax digital for landlords.
What allowable expenses can you claim against rental income?
Knowing what allowable expenses you can claim when completing a self-assessment tax return can be tricky, which is why we have created this handy guide to help you understand landlord allowable expenses.
As a landlord, you can only claim expenses on your buy-to-let income if the expenses are solely for your rental business. For instance, if you buy an air purifier for your rental property but also use it in your own home, then you cannot claim expenses on the product.
General business expenses include anything you use to run your business – i.e. what you need to stay on top of your rental property. This can include office equipment, marketing and advertising materials, and travel expenses.
Ground rents and service charges
If your rental property is a flat, then you may be paying ground rent which would count as another allowable expense.
Paying service fees for a gardener, cleaner, or any other services you may hire to ensure the upkeep of your rented property will also be classed as an allowable expense.
You may also claim tax relief on utility bills – so long as they are included in the rent.
Claiming allowable expenses on property repairs includes general repairs only. General repairs are works carried out to ensure the maintenance of the property, such as painting walls or fixing appliances.
It is important to note that tax relief cannot be claimed on any costs put towards improving the property and increasing value – this would be classed as a capital expense. Examples of capital expenditure may include expanding the property, making renovations or building a garage.
Property management and letting agent fees
Renting a property requires constant management. Some landlords use a letting agent or alternative service to help them manage their rental property.
Since these services are used for the sole purpose of managing the property, then they can also be classed as an allowable expense.
If you require professional services for your property rental business, then you can gain tax relief on these. Allowable expenses include accountant fees, insurance services and legal fees (for lets of less than a year or a lease for less than 50 years).
What can’t landlords claim as an expense?
There are some expenses which you cannot claim tax on. Before starting your next tax return, you should be aware of these to avoid incurring penalties.
You cannot claim any personal expenses which are unrelated to your rental property.
Personal expenses may include private phone calls, total mortgage payments, clothes, cleaning products that are also used outside of your property rental business, and any additional costs that benefit you personally.
How do landlords claim expenses?
As a buy-to-let landlord, you will need to complete a self-assessment tax return at the end of each tax year to ensure you are paying the correct amount on your taxable income. You can reduce this bill by deducting allowable expenses as long as you keep all relevant receipts and documents.
You will only need to complete a tax return if your rental income is between £2,500-£9,999 after allowable expenses or if it is over £10,000 before allowable expenses.
Depending on your situation, there are various ways to register, but you will need to go to the GOV.uk website or contact HMRC to start your registration.
If you need professional advice or support with your taxes, then speak to one of our accountants, who are best equipped to help you.
Frequently asked questions about landlord expenses
To learn more about landlord expenses, check out our FAQs or contact us today:
Can you live in your rental property and still claim expenses?
If you rent out a room in a property you currently live in, then there are different rules for what expenses you can claim. You may still be required to pay tax on the income you receive from renting out a spare room, depending on how much income you receive.
The Rent a Room Scheme could enable you to earn up to £7,500 per year tax-free.
Is council tax the landlord or the tenant’s responsibility?
You can claim tax relief on costs such as council tax, so long as they are being paid for by you. An example of when you might do this is if you include council tax in the rent.
If you don’t include council tax in the rent, then it is the tenant’s responsibility to pay it.
How does the property allowance work for landlords?
For buy-to-let landlords, you can claim a property allowance, meaning the first £1,000 of your annual rental income will be tax-free. However, claiming the property allowance means you cannot claim a deduction for your expenses.
Summary of landlord allowable expenses
If you receive rental income from a UK property, you will need to complete a self-assessment tax return to ensure you are paying the correct amount of tax on your rental income.
The good news is that you can save money on your tax bill by keeping track of all allowable expenses you incur throughout the tax year. Allowable expenses for landlords include business costs, service charges, property management fees and other finance costs used to maintain your rental business.
At Spotlight Accounting, we aim to help landlords like you who are looking for proactive accountants to assist them with their accounting needs. We are experts in our field and will work alongside you to ensure you have the knowledge and support you need.
Fill out our form to get a free consultation!
Further reading for landlords: