Tax on property and rental income Allowable expenses and allowances
Landlords can deduct certain allowances and expenses to work out their taxable rental profit. But what is allowed?
Allowable expenses a landlord can claim
The most common types of expenses you can deduct are:
- water rates, council tax, gas and electricity
- maintenance and repairs to the property (but not improvements)
- contents insurance
- interest on a mortgage to buy the property
- costs of services, including the wages of gardeners and cleaners (as part of the rental agreement)
- letting agents' fees
- legal fees for lets of a year or less, or for renewing a lease of less than 50 years
- accountant’s fees
- rents, ground rents and service charges
- direct costs such as phone calls, stationery and advertising for new tenants
The expense should be incurred wholly and exclusively as a result of renting out your property. Where only part of the expense meets this condition, you can deduct that part from your income – for example, the cost of lighting and heating a property which is partly used for private purposes as well as renting. If you let only part of your home, or let it out for only part of the year, you have to apportion your expenses.
Go further: Which? tax calculator- check your 2015-16 tax bill with our tax calculator
Money Helpline expert on allowable expenses: video
Samm Galloway is a tax expert on the Which? Money Helpline; Which? members have unlimited access to the helpline. Here Samm covers questions she's often asked by landlords.
Annual investment allowance
As a landlord, you cannot deduct expenses of a capital nature. That means you cannot deduct the cost of the property you are letting, expenditure that adds to or improves the property or the cost of renovating a property in a run-down state.
Landlords do however get an annual investment allowance and other capital allowances.
In 2016, you can deduct up to £200,000 a year of capital spending for many types of capital spending using the annual investment allowance, such as commercial vehicles, computers, tools and business furniture. In 2015 the limit was £500,000. Transitional arrangements apply, depending on your accounting period.
If you spend more than £200,000, the excess is carried forward and each year (including the year you buy the item) you can claim 20% of the balance as a writing-down allowance or 10% if the item is an integral part of the building or is a long-life asset (something that has a useful economic life of at least 25 years when it's new).
Allowances for UK properties and allowances for foreign properties
All your furnished holiday lettings are treated as one activity, all your other UK rental properties as another and all your foreign lets as another, and you get a separate £50,000 allowance for each one.
You can’t claim the AIA or writing-down allowance for any spending on buying the property or work on the building, such as adding an extension. Except for UK holiday lettings, you can’t claim the AIA or writing-down allowance for furnishings and equipment for the use by the tenants in a furnished rental property.
See tax on overseas property to learn exactly how overseas property is taxed
Landlord's wear and tear or renewals allowance
If the property or properties you let out are fully furnished, you can claim for wear and tear of furnishings, such as cookers, carpets, beds and televisions. The wear and tear allowance allows you to claim 10% of the net annual rent (income less expenses) each year.
- Buy-to-let stamp duty - calculate your stamp duty bill using our free tool
- Letting a property - this extensive guide reveals everything you need to know
- Call the Which? Money Helpline - our experts can help with your tax queries
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