George Osborne appears to be picking on landlords at the moment. In recent Budgets, he’s brought in the following rules that will impact your tax bill:
- From 1 April 2016, there’s the stamp duty land tax supplement of 3% on purchases of second and subsequent residential properties
- From 1 April 2017, there will be a restriction in tax relief on mortgage interest
- He’s cut the Capital Gains Tax rate from April 2016……but excluded landlords.
Therefore, with all of these potentially increasing your tax bill, it’s definitely worth making sure you haven’t missed out on any deductible expenses when working out the profit for your property rental business.
What are the rules on claiming expenses?
An expense is only deductible if it’s incurred “wholly and exclusively“ for the purposes of your property rental business. If you’re unsure, ask yourself “if I didn’t have the business, would I have spent this anyway?” If the answer’s “no”, then you can claim it as a deductible expense.
What is the difference between Revenue and Capital?
A deduction against taxable profits is only available if the expenditure is “revenue” and not “capital”. Broadly, revenue expenses are those incurred in the day-to-day running of the business.
Capital expenditure is spent in purchasing or improving an asset. For example, this could include costs of extending the property, or improving it (eg fitting a new kitchen). However, there is good news on this via a deduction that is now available for replacement furnishings (see below).
What expenses can I claim?
This is a list of common expenses that are allowable for your property rental business. Of course, they must be “wholly and exclusively“ for the purpose of the business.
- mortgage/loan interest…..but not capital repayments
- letting agent fees
- legal fees for lets of 12 months or less
- legal fees for renewing a lease of 50 years or less
- utility bills (eg gas, water and electricity)
- council tax
- buildings/contents insurance
- advertising your properties
- cleaning costs
- repairs/maintenance costs (as long as they’re maintenance…..not improvements)
- phone bills in relation to the business
- print, postage and stationery
- staff costs
- ground rent and service charges
- accountancy fees – as well as being great value, you can get tax relief on our fees!
What is the new deduction for replacement of furnishings?
Since April 2016, a deduction has been available for the costs of replacing furniture, furnishings, appliances, and kitchenware.
You can claim the cost of the replacement item plus any incidental costs of purchase (eg delivery) or disposing of the old item. You have to deduct any income you receive from selling the old item, ie the allowable amount is the net cost of buying the replacement.
The allowable cost is also capped at the cost of buying an equivalent to the original item replaced. Therefore, if you decided to upgrade, you might not be able to claim the full amount.
This deduction replaces the old 10% “wear and tear” allowance. The good news is that, unlike the previous allowance, this is not limited to furnished lets – it can be used on any rental business.
The rules can be complex, so make sure you’re claiming all the available expenses when you calculate the tax on your property rental income.
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Added by Jon Davies
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