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Landlord Tax Changes: What Are Allowable Expenses?

By Fraser Gregory  //  Mon 6th April 2020
You can reduce your tax bill by claiming for some of the expenses which come with renting out property.
Landlord Tax Changes: What Are Allowable Expenses?
If you’re a new landlord, you need to understand the rules about tax – how it is calculated and which items you can claim tax relief on.

As a landlord, you must pay tax on any profits you make from renting out property. How much you will pay depends on the profit you make and your personal circumstances. If you’ve not rented out property before, or filed a tax return, you will need to register for self-assessment by 5 October following the tax year you had taxable rental profits.

What are the allowable expenses for landlords?

You can reduce your tax bill by claiming for some of the expenses which come with renting out property.

These allowable expenses for landlords are costs, which you have incurred wholly for your property business. We look at some of HMRC’s rules around the allowable expenses you can claim.

You can find out more about allowable expenses for landlords on the government website www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income#allowable-expenses

Which expenses are allowable?

Allowable expenses for landlords are the day-to-day costs of managing your tenancy - often described as revenue rather than capital expenses. They are usually items which won’t add to the value of your asset (the rental property) long-term.

Some examples include:
  • Landlord insurance – buildings, contents and for public liability
  • Letting agent and management fees
  • Ground rent and service charges
  • Cleaning and gardening fees, which you pay for
  • Accountants’ fees
  • The cost of advertising for tenants
  • Stationery and phone calls used directly for your property business.



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What expenses aren’t allowable?

Mortgage payments - you can’t claim mortgage repayment costs as an allowable expense. Previously you could claim for the interest element of your mortgage. However, new rules – which have been phased in and are fully-operational from April 2020 - mean you can no longer claim for mortgage interest. Instead, you will receive a tax-credit, based on 20% of your mortgage interest payments.

Personal expenses – you can’t claim for expenses which aren’t incurred as part of managing your property business, such as clothing or personal phone calls.

Capital expenditure - you can’t deduct what are considered ‘capital’ investments in your rental property as allowable expenses. Expenses are considered capital, if they add to or improve the property in a way that will last for a period of time. This means that the costs of renovating the rental home or adding an extension or new security system can’t be included. Capital costs may, however, be offset against your capital gains tax bill when you come to sell up.

Relief for replacing domestic items

If you let your property furnished, you can claim tax relief on replacing domestic items - this means moveable furniture such as beds, sofas, carpets, curtains and appliances including washing machines, fridges and TVs. This relief only applies if you are replacing an existing item - so you can’t claim for furnishing the property in the first place.

The item must be solely for use by the tenants and the old item must no longer be available to them - you can claim for the cost of disposing of the old items. You can only claim for a like-for-like replacement - not for upgrading to a more expensive model.

Changes to landlords' 'wear and tear allowance'

Domestic items relief replaced the old 'wear and tear allowance’ which operated until April 2016 and allowed landlords to claim a maximum of 10% of their net annual rent each year to compensate them for wear and tear in the property.

How does the replacement of domestic items relief work?

You can deduct the cost of your replacement items from your rental income when calculating the profit you will pay tax on.

To calculate the allowable deduction:
  • take the cost of the replacement item (limited to the reasonable cost of an equivalent item if you chose to upgrade)
  • plus any costs associated with disposing of the old item or acquiring the new one
  • minus any money you received for the old item.

Find out more

If you are thinking of becoming a landlord, we can help you through the tricky issues you’ll need to get to grips with when renting out property for the first time. Contact us to find out more about our services.


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