Part of running a business is learning how to be tax-efficient. As a landlord, you’ll be well aware that you must declare the income you make from renting properties, but how can you minimise your tax bill? You do so through allowable expenses.
This guide will help you identify what expenses you are allowed to claim back on your tax bill by looking at the following areas:
- What is an “allowable expense”?
- What are the expenses that landlords can claim?
- What is the Replacement of Domestic Items relief?
- What expenses can’t landlords claim?
What is an “allowable expense”?
Expenses are costs that you incur when running your business that you can claim back to reduce your tax bill from HMRC.
For an expense to be ‘allowable’ in HMRC’s eyes, it must be “wholly and exclusively” for business purposes.
So for a landlord, you’ll total up all the rental income you’ve made as revenue (including basic rent, as well as any costs you charge tenants for communal cleaning or utilities). Then you’ll total up all the costs you incur while running your properties. The total costs can be deducted from your income so that you are only paying tax on what you made as profit.
The costs you can claim must be entirely for the purpose of renting the property or properties. Next, we’ll cover what expenses are deemed acceptable.
What are the expenses that landlords can claim?
Running the business
Costs involved in operating your rental business will be allowable expenses, as they contribute to your ability to trade. For example:
- Landlord insurance
- Letting agents fees
- Legal or accounting fees
- Marketing and advertising costs
- Office stationery
- Phone bills, but only if you have a phone solely dedicated to your business enquiries
Items included in rent
If your rent includes other items as well as the basic rent, then you have to include the whole total you charge the customer in your declared income. But you can claim back the cost of the following items if you charge them as part of the total rent:
- Utilities, such as electricity, water, or gas
- Council tax
You can also claim back the cost of certain services if they are included in the rental agreement and paid for as part of total rent, such as:
- Cleaning services for communal areas or regular cleaning
- Wheelie bin cleaning
- Cost of gardening services if included in the rental agreement
Maintenance and repairs
Other costs you may incur as part of renting a property is maintenance and repairs. Here are some examples of items classed as allowable maintenance expenses:
- Repairing leaks or burst pipes for water or gas
- Fixing electrical faults
- Replacing broken windows, doors, gutters, roof slates/tiles
- Repairing internal and external walls, roofs, floors
- Repainting and redecorating (but not improving) the property to restore it to its original condition
- Treating damp or rot
- Re-pointing or stone cleaning
- The cost of hiring equipment to carry out necessary repair work
The cost of replacing existing fixtures and fittings such as radiators, boilers, water tanks, bathroom suites, and kitchens is also acceptable, but not electrical or gas appliances. Gas and electrical appliances are covered through Domestic Item Relief.
What is the Replacement of Domestic Items relief?
Over time you’ll find that you have to replace certain domestic items in the property. Fixtures such as radiators and boilers are considered expenses, but any ‘moveable’ item could be deducted from your tax bill under Replacement of Domestic Items relief. Not all landlords provide these items in their properties, but you’d be able to claim back the costs of updating:
- Moveable furniture such as beds or free-standing wardrobes
- Furnishings like curtains, linens, carpets, rugs
- Household appliances, for example, televisions, fridges, freezers
- Kitchenware such as crockery or cutlery
What expenses can’t landlords claim?
When it comes to replacing items, you must be careful. If the new item is an improvement on the old one, you can only claim a tax deduction for the cost of buying an item the same as the original.
For example, let’s say you are replacing an old sofa with a new one. A new couch that is a direct replacement for the old one costs £400, but a sofa bed costs £550. If you chose to purchase the sofa bed, then this would mean you can only claim the £400 as a deduction, and no relief is available for the £150 as this is an ‘improvement’ on the original item.
A new item is an improvement when:
- It’s not the same, or mainly the same, as the original
- The functionally has changed (for example, from a sofa to a sofa bed)
- The quality of the material of the item is significantly upgraded
Certain items qualify as replacements even if they are improvements because they are ‘reasonable modern equivalents’.
For example, a brand new fridge would have a more efficient energy rating compared to an old one. This would not be seen as an upgrade, and the total cost of the new fridge would be eligible for Replacement of Domestic Items relief.
The other circumstance you will be unable to claim is if the cost is considered a capital expense. Capital expenses are costs that will be used in the business for a long time. For example, capital expenditure in a rental property would be:
- Adding something to the property that was not there before, such as an extension or garage.
- Altering, improving or upgrading something existing, such as refitting a bathroom or kitchen with a higher specification or for aesthetic purposes.
- The purchase of certain furnishings or equipment for the property, such as installing a security system when there wasn’t one before.
Make managing your rental income simple
Financial management can be stressful and time-consuming when you’re a self-employed landlord managing properties. That’s why thousands of business owners use the Countingup app to make their financial admin easier.
Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. You’ll see all your rental payments coming into the account, and use the card for any business expenses. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are.
You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Find out more here.