Rental Property Expenses Checklist

One of the questions I get asked about most often is what you can claim against your rental income to reduce any tax you need to pay. And you may be surprised about some of the things that are deductible! We outline your allowable expenses in this rental property expense checklist.

Here are some key items you can claim as expenses:

• Letting agent fees
• ICO registration fee
• Energy performance certificates
• Specialist landlord insurance
• Health and safety certificates
• Required safety items, such as smoke and/or fire alarms
• Cleaning, gardening and other property maintenance services
• Professional fees, such as accountancy and tax return management fees
• Certain legal fees
• Landlord association fees, e.g. membership of the National Residential Landlords Association (NRLA)
• Travel to and from the property for visits (or the letting agent if outsourced)
• Phone calls and stationery

Related: Should You Track Allowable Expenses For Landlords With A Buy To Let Spreadsheet?

Important Things To Know About In Our Rental Property Expenses Checklist

Maintenance vs Improvements

It’s worth bearing in mind that there is a big difference between maintenance and improvements. Maintenance is tax deductible from your income – i.e. can be included as an expense on your annual tax return – but improvements are only tax deductible for capital gains tax purposes. And it’s not always obvious which works fall under each definition – for example, replacing single glazing with double glazing is seen today as a ‘repair’ and therefore is considered maintenance, whereas an extension would obviously be seen as an improvement.

Another area for confusion can be ‘pre-letting’ expenses when you are preparing a property to let. For instance, if you were aware when you bought a property that it needed a full rewire to make it habitable and safe, this would be a capital/improvement cost. However, if you bought a property, tenants moved in and then an electrical fault was discovered, this would be a repair/maintenance cost.

And it’s this kind of detailed knowledge of income, expenses and tax that makes a specialist property tax expert a good investment as opposed to a cost!

Related: How To Increase Cash Flow For Your Residential Buy to Let

Depending on your type of let and how you manage it, other expenses you may incur include:

Income and Capital Gains Tax

Although you have allowances you can claim for, it’s important to speak to a tax specialist so they can assess your tax, based on all of the income and gains you make in a year. Tax is not specific to only your property and you’ll have to pay by the deadlines and, in some cases, in advance.

Utility and Council Tax bills

In some cases (typically Houses in Multiple Occupation), you will also be paying Council Tax and gas, water and electricity bills. You may also need to add in broadband and any other services you pay out for.

Licensing fees

Depending on your local authority, it may not only be HMOs that require a licence – some local councils have blanket licensing requirements for any privately let property – so it’s important to know what licences are required in the area where you’re letting property and also to keep up to date with any changes in the rules.

Letting fees

Any fees relating to the letting of the property are deductible – for example, advertising fees, the cost of securing a tenancy agreement (ideally from a source that sends you updates when the rules change) and things like deposit protection. If you use a letting agent, then you can claim all their letting and management fees.

Leasehold bills

If you own a leasehold flat or house that you let, then you’re likely to incur ground rent, service charges and possibly other costs related to the property, all of which can be deducted from your rental income.

Landlord education

This can be a tricky one to navigate. If you go on a training course to improve your existing knowledge as a landlord, you can generally claim that cost. However, if you train to learn a completely new skill, the cost is probably not deductible. In addition to courses, you may also be able to claim for professional books and relevant magazine subscriptions.

Mortgage interest

Now that mortgage interest is no longer tax deductible (as of April 2020), you receive a tax-credit equal to 20% of whichever is the lower out of:

• Total mortgage interest and finance costs
• Total profits less any losses brought forward
• Total income (minus savings/dividend income) that exceeds the personal allowance

Here’s an example of how it works, assuming your mortgage interest and finance costs are the lower figure:

If your rent is £1,000 and you have an interest-only mortgage cost of £700 per month, you’ll be taxed on 12 x £1,000 rental income = £12,000, minus costs, as above.

Then, on the £8,400 you have paid out in mortgage interest, you will be given a ‘tax credit’ of 20% = £1,680, irrespective of whether you are a 20% or 40% taxpayer.

Rental Property Expenses Checklist Final Words

When it comes to property, tax is particularly complicated because you aren’t taxed purely on your income or gains from property – you’re taxed based on all your income and capital gains, which could be from a variety of sources. It’s important to understand that adding an extra buy to let property to your overall income and investment portfolio can change your tax circumstances and may mean you lose any benefits you might have been receiving.

So, to make sure you pay the tax you owe, but no more, we’d recommend you engage a property tax expert who can advise you on the most tax-efficient way to invest in and release profits from property.

A key part of this process is to keep accurate records throughout the tax year, which is easy when you use accounting software like Landlord Studio, a tool designed specifically for landlords.