How much of a rental property is tax deductible?
Landlords often ask us as insurers if premiums for home insurance on rental property are tax deductible – and the good news is yes. There are a number of expenses that are, as we discuss in this article.
There are many ways to offset the costs of running a let property against your rental income, whether you let as a business or as an individual.
We’ve looked at some of the common questions asked, starting with which rental property expenses are tax deductible. The following article summarises guidance provided by the Government.
Capital expenditure is not tax deductible
One thing to appreciate is the difference between capital and revenue. Capital expenses, such as extensive building improvement works, are not tax deductible.
Improvements
General repairs and maintenance are tax deductible. There may be a fine line between capital and revenue expenditure on occasions, but it’s usually fairly obvious.
For example, adding an extension cannot be claimed as revenue expenditure against your property income, but painting a rental property is tax deductible. If you buy or let a property and simply redecorate it, those costs would be seen as revenue expenditure and be tax deductible.
However, if you bought a property at a bargain price because it was in a poor condition, and carried out substantial redecoration, it might be seen as restoration work and could be non-deductible
Repairs and replacements
You might be able to get tax relief for money spent on repairs such as fixing water leaks, heating problems, and broken windows. You can also look to offset your annual gas safety certificate and service, and electrical condition reports.
Replacing fittings, appliances, and furniture that are past their useful life can also be allowable, provided you are claiming like for like. You can provide new for old, but be careful of claiming for an expensive upgrade. There’s nothing to stop you buying a much better cooker, freezer or sofa, but you might not get full tax relief on the total cost.
Other expenses that are tax deductible for rental properties
The following can also be tax deductible:
- Water rates
- Council tax
- Gas and electricity bills
- Ground rents and service charges
- Direct costs such as landlord insurance policies for buildings, contents and public liability
- Money paid to gardeners and cleaners
- Letting agent fees
Letting agreements often require tenants to pay for utilities and council tax, but if landlords have to pay for these during a period when the property is vacant, then you can see if you can claim tax relief on what you have spent.
Claiming administration such as postage, stationery and telephone calls can also be allowed. There’s an allowance for using your home as an office, which requires calculations about usage and square footage of the space.
Office equipment like computers can only be claimed for if wholly used for the rental business or if you can identify the proportion of business use vs personal use they get.
What if I have a low rental income?
If your rental income is low, you can save yourself some administration by using the £1,000 flat rate property income allowance instead of calculating expenses and capital allowances. If you do, you cannot claim any other expenses.
Record keeping
Be sure to stay on top of everything, keeping records of all bills and paperwork for anything you do regarding your rental property.
Don’t leave it all until the last minute. Record them as you go through the year can help you avoid forgetting something and missing out on tax relief.
Make yourself familiar with government guidance
Read through the Government’s online guidance on working out your tax deductibles. There are plenty of worked examples there to help you fill out a rental property tax deduction spreadsheet and keep abreast of your own tax position.
Just Landlords is here to help
As well as ensuring you are aware of the costs landlords can claim against tax, consider finding suitable insurance to help you financially. Our comprehensive Landlord Insurance includes 40 covers as standard, providing a range of protection for your rental investment.
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Just Landlords accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.
FP883-2023
