What I should be doing in relation to tax as a private landlord?

Keep records of all expenses: 

• This will help you prove to the tax authorities that the expenses are allowable and that you're entitled to claim them as deductions against your rental incom

Determine your rental income: 

• Your rental income is the amount of money you receive from your tenants.

Claim your expenses: 

• When completing your income tax return, fill in your allowable expenses. You'll need to provide details of each payment, including the amount and purpose.

Calculate your taxable profit: 

• Your taxable profit is calculated by subtracting your allowable expenses from your rental income. The taxable profit is the amount of money on which you'll pay tax.

Report your taxable profit on a Self-Assessment tax return: 

• If you're a UK resident and your taxable profit is above the tax-free allowance, you'll need to report your taxable profit on a Self-Assessment tax return. This is typically due by January 31st each year.

What is classed as allowable expenses for UK private landlords?

• Allowable expenses are the costs that the government allows you to subtract from your total income to lower the amount of taxes you owe. Simply put, they are expenses you can claim against tax. For landlords, allowable expenses are the costs directly related to generating rental income – For example:

Repairs and maintenance

• Costs for repairs to property are allowable expenses, as they incur to maintain the property in a suitable condition for rental. These repairs must restore the property to its previous good state, for example by fixing a leaky roof or replacing a broken window.

Replacement of domestic items

• If you let a furnished property, you can claim tax relief on replacing certain household items, such as furniture, furnishings, and appliances. However, if the replacement item is more expensive than the old item, you can only deduct the cost of purchasing an equivalent item to the original. The rest of the amount will be part of your taxable income. The cost of replacing small household items, such as utensils, dishes, cushions, bed sheets, and similar are also eligible for tax relief.

To be considered allowable, these items must meet the following criteria:

• they must be of low value
• have a short lifespan
• require frequent replacement (nearly every year).

Insurance

• Landlord insurance, such as buildings, contents, public liability insurance and any coverage against loss of rent, is an allowable expense in the UK.

Utilities and council tax

• If you're responsible for paying utilities such as gas, electricity, and water, you can deduct them from your taxable income.

Professional fees

• Professional fees paid to a property management company, letting agent or accountant are considered allowable.

Marketing costs

• The costs spent on advertising your property to tenants are considered an allowable expense.
• To save money on advertising, consider an online platform where you can advertise for free or one that doesn’t charge a monthly fee. 

Legal fees

• Legal fees related to letting the property, such as drawing up the lease agreement, negotiating terms, and handling disputes, are allowable.

Travel costs

• Travel costs, such as the cost of travelling to the property to carry out repairs or to meet with tenants, can be claimed as an expense.

Mortgage interest

• If you bought your rental property with a mortgage, you can deduct the interest element of your mortgage payment from your rental income.

What is not classed as allowable expenses for UK private landlords?

• Any costs that weren't spent solely for generating rental income aren't considered allowable. You can't deduct them from your rental income. If you claim non-deductible expenses against your rental income, you may be subject to penalties and fines from HMRC. Claiming non-deductible expenses can also trigger an HMRC investigation, during which the tax authorities will thoroughly examine your records. This could result in further penalties and fines if you previously made mistakes.

Capital expenses

• Capital expenses refer to costs incurred to improve the property. You can't deduct these expenses because they increase the property's overall value.

For example, capital expenses include:

• adding an extension to the property
• installing central heating
• replacing the roof
• upgrading the electrical system
• fitting a new kitchen

In general, an item is considered an improvement when:

• it's not very similar to the old item
• its function has changed, e.g. from a sofa to a sofa bed
• the quality or material of the item has been upgraded, like switching from a veneer to a wooden table.

On the other hand, if you replace a part of your property with a newer version during a repair, it's still considered deductible if the upgrade is a side effect. For example, if you need to replace a single-glazed window in an old property, you’ll have to comply with current energy efficiency standards in the UK. That means that you’ll have to put a double-glazed window instead.

So, when in doubt, consider whether the expense is improving the property or simply maintaining its current condition. If it's improving the property, it's likely to be a capital expense and not deductible from rental income.

Private expenses

• For example, the costs are not considered allowable if they are incurred when you use the rental property for personal purposes, such as a holiday home.

How to claim allowable expenses against tax as a private landlord

Simply include your costs as deductions on your tax return. You can claim expenses incurred during the tax year, regardless of whether you have received rent payments. Just make sure to keep receipts and records of all expenses so you can provide evidence if needed. You should keep all your receipts for 6 years, in printed or digital form.

Allowable expenses can help reduce your tax bill, if in doubt seek professional advice if you're unsure about what expenses you can claim.

This article is for informational purposes only.

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