As a landlord, understanding which expenses can be deducted from your taxable rental income is essential to optimise your financial returns. This article provides a guide to allowable expenses, including those specific to landlords in Northwich and Congleton. Managing properties can incur various costs, and knowing which of these are allowable expenses by HM Revenue and Customs (HMRC) can significantly impact your profitability.
What are Allowable Expenses?
Allowable expenses are certain costs that landlords can deduct from their rental income before they pay tax. According to HMRC guidelines, these expenses must be wholly and exclusively for the purposes of renting out the property. This means the costs must be incurred in the direct operation of renting out your property.
Types of Allowable Expenses
General Maintenance and Repairs
Expenses for general maintenance and repairs can be deducted, but it’s important to differentiate these from ‘improvements’. For example, replacing a broken windowpane counts as a repair, which is allowable. In contrast, replacing all windows in the property to enhance its value and increase rental appeal is classified as an improvement, which is not allowable for tax purposes.
Letting Agency Fees
Letting agency fees are entirely deductible. These fees can include costs for finding tenants, reference checks and the administration associated with renting out your property. Given the expertise required in managing property transactions and tenant screenings, utilising a letting agency like Belvoir can be both cost-effective and efficient and you to claim back these expenses.
Legal Fees for Lets Under a Year
Legal fees incurred for drafting rental agreements or the eviction of tenants are deductible, provided the lease is for a short term (not exceeding one year). This ensures landlords are not penalised for enforcing their rights and responsibilities under rental agreements.
Accountant’s Fees
Professional fees for accountancy services related solely to your property rental business can also be deducted. These services include preparing accounts, calculating your tax liabilities and filing your tax return.
Property Insurance
Costs of insuring your property against risks like fire, flooding or other damages are allowable expenses. This also includes any public liability insurance, providing coverage against injuries or property damage claims made by tenants or visitors.
Utility Bills and Council Tax
If you are responsible for paying utility bills and council tax, these costs can be deducted. However, if your tenants pay these bills themselves, you cannot claim these expenses.
Other Allowable Expenses
Other expenses include costs for services such as garden maintenance, cleaning shared areas (in properties with multiple occupancy) and costs for services like broadband if included within the rental agreement.
Non-Allowable Expenses
It’s equally important to be aware of non-allowable expenses. These include costs related to your own personal use of the property, capital expenses such as property improvements and costs associated with the initial purchase or sale of the property. Understanding these distinctions helps ensure you’re not mistakenly claiming non-allowable expenses, which could lead to issues with HMRC.
Claiming Expenses
To claim these expenses, ensure you keep detailed records, including receipts, invoices and bank statements. HMRC can request to see these documents up to six years after the relevant tax year, so it’s crucial to maintain organised records.
Managing a rental property in Northwich or Congleton can be lucrative, but it’s essential to navigate the complexities of allowable expenses. By understanding and claiming the correct allowable expenses, you can significantly reduce your tax liability and increase the profitability of your rental business.
Are you a landlord in need of professional advice or services to manage your rental property efficiently? Belvoir is here to help. Contact our Northwich and Congleton office today to find out how we can assist you in making the most of your property investments, ensuring compliance with tax regulations while maximising your returns.
For more detailed guidance on allowable expenses and managing your rental property’s finances, visit the HMRC official guidelines at: Income Tax when you rent out a property.
