Tax Deductible Expenses for Landlords

As a landlord, you are likely to incur a variety of operational expenses. These expenses might be from marketing costs when finding tenants, property maintenance costs, property management software like Landlord Studio, or if you're a more hands-off investors professional property management services. Fortunately, many of these expenses are deemed as "allowable expenses" for landlords, and can be deducted from your end of year tax bill.

As such, it's crucial to properly manage your finances with property management and accounting software like Landlord Studio. However, this process can be complicated. This article provides a few of the key pieces of information you need to know so you can maximise the tax relief and allowances available to you and minimise your end of year tax bill.

What Are the Allowable Expenses a Landlord Can Claim?

As a general rule, a landlord can claim any of the expenses that are incurred from running and maintaining their property.

If the rent you charge covers utility bills or council tax you will need to count this as part of your rental income and then deduct those costs as expenses.

The most common kinds of expenses landlords claim are as follows:

• Utilities eg. Water rates, gas, electric, broadband;
• Council tax;
• Landlord Insurance;
• Services eg. gardener, cleaner;
• Letting agents fees
• Property management software;
• Accountant fees;
• Direct costs related to the property such as phone bills, stationery, digital business cards, website hosting, etc.;
• Repair and maintenance expenses;
• Some mortgage interest (this relief recently changed find out more about it here.)

The expenses should be incurred wholly and exclusively as a result of renting out the property. Where only part of the expense meets that criteria you can deduct part of the expenses from your rental income.

For example, you let only part of your home, you would have to portion part of the expense. For more information about what is an allowable expense consult your tax advisor.

The Easiest Way To Stay On Top Of Rental Property Expenses

Create your free Landlord Studio account today to streamline your rental property income and expenses tracking, stay compliant, and ensure you claim every allowable expense at tax time.

Making Improvements to Your Property

When it comes to making improvements on your property you can’t deduct these costs as expenses. For example, you add a conservatory or loft conversion which increases the value of the property. These aren’t deductible expenses, unfortunately.

You may though be able to use the costs of these investments to reduce your capital gains tax when you come to sell the property.

You will want to consult with a professional to discuss your options and what records need to be kept.

Property Allowance

The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property. If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income. You cannot use this allowance on income from letting a room in your own home under the Rent a Room Scheme.

Landlords’ ‘Wear and Tear Allowance’

You used to be able to claim expenses for the wear and tear of items if you supplied your property furnished. For example, cookers, carpets, beds, and televisions.

The wear and tear allowance allowed you to claim a maximum of 10% of the net annual rent (income fewer expenses) each year.

This though has now changed. The government now allows you to claim tax relief on anything you spend on replacing what it labels as a ‘domestic item.’

Crucially, this only applies to items you are replacing. You can’t claim tax relief on the actual cost of kitting out a property for the first time with furniture or appliances. It can only apply when an item is genuinely replaced and no longer used in the property.

For more insights into what constitutes fair wear and tear in a rental property, visit our article here.

What Is ‘Replacement of Domestic Items Relief’?

The government lists several examples of what domestic items qualify for this new relief. These include:

• Beds;
• Carpets;
• Crockery or cutlery;
• Curtains;
• Fridges, washing machines, etc;
• Sofas.

It’s also well worth noting that you can only claim like for like replacements. Meaning, if you buy a fridge for £500,  but when you come to replace it the same model is only £250. You would only be able to claim the £250 relief.

You can also claim for the cost of disposing of items (usually electrical goods).

For more on claiming replacement relief, read our article here.

How Does This ‘Replacement of Domestic Items Relief’ Work?

An example:

It’s the end of a tenancy and a few things are looking a little bit shabby. You do a walk around and decide to replace the curtains for £200, a washing machine for £250 (which also costs £50 to dispose of) and a new bed for £400.

The total relief you can claim is £200 + £250 + £50 + £400, which amounts to £900.

This can be deducted from your annual rental income to work out your tax bill at the end of the tax year.

Learn how to accurately and efficiently track tax-deductible expenses with Landlord Studio →

We hope you found this blog interesting! However, do note that it should not be used as a substitute for competent legal and/or other advice from a licensed professional.