Tax Tips for Landlords
- UK based landlords are required to notify the Inland Revenue if they are letting a property. If you are a landlord based overseas letting out UK property we recommend contacting your local lettings branch to discuss further.
If you own a rental property you are obliged to pay tax on any income or profit you make from it. Income tax is payable on any rental income you receive from letting out your property.
The good news is that there are a number of deductions, or allowable charges, that can be written off as non-taxable expenses.
Below is a run-down of those charges and a number of tips to help you make the most of your property investment.
It is always advisable to seek guidance on how to reduce your tax liability both legitimately and effectively. Countrywide Residential Lettings have experience in a range of elements within the rental market and can provide comprehensive income tax guidance in relation to lettings.
Income Tax Deductions
In calculating the profits and therefore the income tax liability, expenses are allowable where they are incurred wholly and exclusively for the purposes of the rental business and are not of a capital nature e.g. not the cost of the land, buildings, improvements or alterations.
Broadly, in calculating the profits of a rental business, expenses are allowable where:-
They are incurred wholly and exclusively for the purposes of the rental business; and they are not of a capital nature (the cost of the land and buildings and the cost of improvements and alterations is expenditure of a capital nature).
Subject to the above and any unforeseeable changes, the current expenses will normally be deductible:
- Accountancy expenses (incurred in preparing rental business accounts but not for preparing personal tax returns).
- Advertising costs of attracting new tenants.
- Charge for inventories.
- Costs of rent collection.
- Council Tax while the property is vacant and available for letting.
- Ground rent.
- Insurance against loss of rents.
- Insurance claim fees.
- Insurance on buildings and contents.
- Mortgage interest charges. As such you can deduct any funds used to pay the mortgage interest charged by your lender. The capital repayment element of your mortgage is not deductible (further conditions apply).
- Interest paid on loans to build or improve premises (further conditions apply).
- Legal and professional fees (any fees incurred in the day to day management of your rental property can be deducted. Such fees include; the cost of preparing leases and inventories, collecting rent, preparing your tax return for the rental property and letting agent charges).
- Letting agent fees.
- Agreement fees for leases of less than a year.
- Maintenance charges made by freeholders, or superior leaseholders, of leasehold property.
- Maintenance contracts (for example gas servicing).
- Marketing expenditure incurred during advertising the rental property and attracting new tenants.
- Provision of services (for example gas, electricity, hot water).
- Rental warranty and legal expenses insurance.
- Replacing windows.
- Repairs which are not significant improvements to the property, including: damp and rot treatment; mending broken windows, doors, furniture, cookers, lifts etc; painting and decorating; replacing roof slates, flashing and gutters; repainting; and stone cleaning.
- Revenue costs of travelling between different properties solely for the purposes of the rental business are an allowable deduction in computing rental business profits.
- Water rates.
Maintenance and Repairs
Legitimate maintenance and repair costs can be deducted from your tax liability. Expenses such as cleaning, maintenance charges and fixtures and fittings replacements are allowable, significant improvements however, are not. As a guideline ‘wear and tear allowance’ generally allows you to claim 10% of your rental income as a tax deduction on a fully furnished property with certain conditions.
Remember to keep your paperwork
It is recommended that you retain the following information and documents relating to the rental property:
- All contracts relating to the purchase, sale or lease of the property.
- Details of any properties you have put into trust or transferred to others.
- Any evidence of significant gains or losses.
- Records of all mortgage accounts detailing the interest and capital repayment elements of each payment.
- Bills and invoices displaying payment records for any costs relating to the purchase, repair, improvement or sale of the property.
- Any evidence proving when you may have lived in your rental property e.g. tenancy agreements proving commencement dates.
Countrywide Residential Lettings have expertise in all elements of the rental market.