As a property investor, you need to pay tax on the profit you make from renting your property out. The rate of tax you pay depends on the total income you’ve earned from all of your employment, self-employment or pensions. However, there are some tax deductible investment property expenses you should be aware of.
Once you work out your taxable rental income for the year, then add up the allowable expenses to deduct from your rental income. Allowable expenses are expenses related to the day-to-day running of your rental property and must be “wholly and exclusively for the purpose of renting out the property”.
According to HMRC, common types of investment property expenses you can deduct from your property income (as long as you paid for them personally) include:
- general repairs and maintenance but not improvements
- buildings, contents and public liability insurance
- letting agent and management fees
- water, gas and electricity bills
- council tax
- service costs, like wages of cleaners and gardeners
- rents (if sub-letting property), service charges and ground rents
- legal fees for renewing a lease for less than 50 years or for lets of a year or less
- accountant’s fees
- direct expenses, including stationary, phone calls and advertising for new tenants
- vehicle running costs (only the proportion used for the rental business)
Replacement of domestic items relief
The government used to allow property investors and landlords to claim tax relief through the wear and tear allowance. However, that is no longer enacted, but you can claim relief on anything you spend on replacing what the government considers a domestic item through replacement of domestic items relief.
Domestic items that qualify for this new relief are replacement:
- fridges and washing machines
- crockery and cutlery
Note: You can only claim for a like-for-like replacement. This means if you bought a new washing machine worth £400, but the cost of replacing the old washing machine with a similar kind was only £300, then you’d only be able to claim £300 of relief.
Capital expenses are expenses that will increase a property’s value. These types of expenses can’t be claimed against your rental income. However, keep records of them as you may be able to offset them against Capital Gains Taxes when you sell the property. Capital expenses include:
- adding something to the property that wasn’t there previously
- altering, improving or upgrading something that was existing
- purchasing furnishings and equipment for the property
It’s important to keep up with what investment property expenses are tax deductible, so you can make the most of your property investment portfolio. At PropertyMenu, we work with trusted professionals who can provide answers to your queries related to taxes and tax-deductible expenses. Please contact us if you need any tips or recommendations.