As a landlord, the lower the taxable profit from your property rental business, the less tax you will pay. As allowable expenses are deducted from rental income to arrive at the profit figure, it is important that you do not overlook any expenses which you have incurred and which can be deducted when working out your taxable profits.
What is deductible?
The general rule is expenses can be deducted in calculating the profits of your property rental business if they are incurred wholly and exclusively for the purposes of that business. Revenue expenses can be deducted regardless of whether you prepare accounts on a cash basis or an accruals basis. However, if you prepare accounts on a cash basis, you can also deduct many capital expenses (the main exceptions being the cost of cars and the property itself). If accounts are prepared on an accruals basis, there is no deduction for capital expenditure when calculating profits (although relief may be available otherwise depending on the nature of the expenditure).
The following is a checklist of common expenses. This can be used to check that you have not forgotten to deduct any when working out your taxable profit. Remember to keep records of all expenses that you incur so they do not get overlooked.
- general maintenance and repairs to the property (but not improvements);
- water rates;
- council tax;
- gas and electricity;
- insurance (such as landlord’s insurance for buildings and landlord’s contents);
- cleaning costs;
- gardening costs;
- letting agents’ fees;
- property management fees;
- legal fees for lets of less than a year or for renewing a lease of less than 50 years’
- accountant’s fees;
- office costs, such as stationery, paper, printing and postage;
- advertising costs;
- phone calls; and
- rent where the property is sub-let.
Points to watch
If you use vehicles for your business, you can use simplified expenses to work out what you can deduct. This is based on a mileage rate of 45p for the first 10,000 business miles in the year and 25p per mile for any further business miles.
If you have incurred finance costs, such as mortgage interest relief, these cannot be deducted in working out profits. Instead, relief for 20% of the costs is deducted from the tax that you pay.