Usually, landlords are prone to misunderstand the exact factors that make capital expenses and revenue expenses different from each other. It is the most common and frequently asked question as well. In this guide, we will learn what are allowable expenses for rental income.
Furthermore, it is important to realise the difference between the repair and the improvement work as well. The landlords claim only for the mortgage due to this lack of knowledge as well.
Something to beware of here includes the following as well:
- Some expenses never qualify for tax relief.
- Certain expenditures can only be allowable when the property is sold.
- Some of the expenses can never be dealt with deductions but there is some special rule for them.
Further in this article, we will discuss different expenses that are allowable against rental income. This includes the following:
- Maintenance and Repairing
- Finance Cost
- Accountancy and Management Fees
- Services
- Traveling Expenses
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1. Maintenance and Repairing:
The repair work that is carried in a property after the property is let can be claimed as an allowable expense, however, the repairing and maintenance expenses before the letting time will be considered as your expenses. This will not come under allowable expenses.
In the case of furnished letting property, the expenses on furnishing and relevant repairing cannot be claimed.
2. Finance Cost:
By finance cost we mean the expenses like arrangement fees and interest on the loans, that are used to purchase a property or to improve the condition. Any other expenses related to the separate property bank account are also in the count of financial cost.
There is a simple way to explain the finance cost through the example which is given below:
John happens to be a teacher his age is 49 years, as well as he is a 40% taxpayer. He intends to buy a let property and is interested in investing. Now that he has owned the letting property for some time, outstanding debt will be low. Below is the detail mentioned:
| Actual Profit | Taxable profit | |
| Gross rents | 7,200 | 7,200 |
| Repairs and other tax-deductible costs | 1,000 | 1,000 |
| Interest on mortgage | 2,500 | Nil |
| Net Rental profit | 3,700 | 6,200 |
| Tax at 40% | 2,480 | |
| Less interest relief at 20% on £2500 | 500 | |
| Net tax liability on rental income | 1,980 |
3. Accountancy and Management Fees:
Any legal fees that are charged to buy the letting property or there can be lease initial fees are the kind of expenses that can’t be claimed. However, the following are the expenses that can easily be claimed:
- Management and accountancy fees
- Rent collection
- Shorthold tenancy
- Renewal of the lease
- Rent collection
4. Services:
In case, you have paid service charges that are for any service related to the letting like electricity charges, this can be claimed easily. On the other hand, furnished residencies make you bound to pay for the gas, water, electricity, telephone and other such services.
5. Travelling Expenses:
Do you have to travel to deal with the Maintenance issues of the tenants? If that is the case, the good news is that the travelling cost for this purpose can be claimed too.
Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!
The Bottom Line:
Now that you have developed a better understanding of allowable expenses for rental income, we can sum up the discussion by saying that allowable expenses are sometimes confusing for landlords, and if HMRC picks up on any mistakes in the claim, this will be another costly factor.
It is suggested to seek a tax specialist for the processing and this can help you to keep yourself safe from extra payments.
