What expenses can I claim against my rental income?

What expenses can I claim against my rental accounts?

What expenses can I claim against my rental income?

We are often asked which expenses are allowable costs against rental income. There are many that are allowable but it is important to understand the difference between a CAPITAL expense and a REVENUE expense. For example, establishing the difference between a repair and an improvement and claiming only the mortgage interest not capital repayment.

As with many tax issues the rules are seldom straightforward so the things to watch for are;

When you buy a property

The costs and expenses you incur when you buy the property are treated as part of the purchase price. You will need to keep details of the following;

Purchase price

Stamp Duty

Legal Fees

Building survey fees

These expenses can be deducted from the gain (profit) when you sell the property.

Allowable expenses against the rental income

HMRC’s general rule is that an expenditure must be ‘wholly and exclusively’ for the rental income.

Interest and finance charges

From 6th April 2017, tax relief on interest paid by landlords of residential properties will be restricted gradually (by 1/4 for each tax year) so that from 6th April 2020, interest will not be an allowable expense in computing the profits of the business, but will attract tax relief at 20%. Basic rate (20%) taxpayers will see no change to their liabilities.

Repair and maintenance

Repair work carried out on the property can be claimed provided that it is not a capital improvement. The general rule is that if you are fixing something or replacing like with like then it is allowable. For example if the oven breaks and you have to replace it is treated as a repair (and so allowable). If you built an extension onto the house this would be a capital investment and so would only be used against the gain when you sell the property.

Another allowable expense is the cost of safety certificates for the property.

Rent, rates and council tax

You may pay ground rent if the property is a flat. The tenant normally pays the rates or council tax, but if you do pay these costs these can be claimed.

Services

If you pay any service charges or for any other services in connection with the letting e.g. electricity in common areas, these should be claimed. If the property is a furnished holiday letting then it is likely that you will pay for electricity, gas, water, television licence, telephone and other services.

Insurance

Property insurance for the buildings and contents can be claimed. Life assurance policies cannot.

Legal, management and accountancy fees

You cannot claim any legal fees in connection with the purchase of the property or any fees for the initial lease if the lease is over one year but you can claim management and accountancy fees.


Contact us if you would like more information

  info@northdevonaccounts.co.uk

  01271 815 332