If you let out a property, you can claim deductible expenses to reduce your taxable rental income. The rules for these deductions vary depending on whether you use the cash basis or the accrual basis when preparing your accounts.
Cash Basis vs. Accruals Basis
Cash Basis
If you use the cash basis (the default method), you can deduct revenue expenses incurred wholly and exclusively for renting out the property. Additionally, certain capital expenses are deductible on a cash basis, such as the cost of a van. However, the cost of a car or the property itself cannot be deducted.
Accruals Basis
Using the accruals basis allows you to deduct revenue expenses incurred for the property rental business. This method may suit larger property portfolios where revenue and costs vary significantly over time.
See Our Packages
10 Common Deductible Expenses for Property Owners
Here are 10 common deductible expenses for property owners.
1. Letting Agency Fees
If you rent your property through an agency, the letting agency fees are deductible. These fees typically represent a percentage of the rental income.
2. Advertising Costs
Advertising expenses to find new tenants are considered allowable deductible expenses. These costs can be claimed when calculating your rental profits.
3. Accountancy Costs
Any fees for accountants or bookkeepers are deductible, helping you ensure financial records are accurate and tax returns are compliant.
4. Cleaning Costs
The cost of cleaning services, whether for in-tenancy or end-of-tenancy cleaning, can be deducted. This deduction also applies if you hire a cleaner for your office space.
5. Gardening Costs
If the property has a garden, the gardening expenses you incur are deductible when calculating your taxable rental income.
6. Travel Expenses
Travel expenses related to your property rental business, such as visiting the property, meeting tenants, or undertaking maintenance work, are deductible expenses if they are incurred wholly and exclusively for business purposes.
7. Repairs
You can deduct costs for repairs needed on the property, as well as expenses for maintaining fixtures and fittings. This does not include capital improvements but covers essential maintenance.
8. Replacement of Domestic Items
For a furnished residential property (excluding furnished holiday lets), you can claim the cost of replacement domestic items like appliances, furniture, and kitchenware. This deduction is capped at the cost of a like-for-like replacement and does not cover the initial purchase cost.
Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!
9. Utilities and Council Tax
In a holiday let, landlords are typically responsible for utilities and council tax. These deductible expenses are allowable if the landlord bears the costs.
10. Interest and Finance Costs
Residential landlords cannot deduct interest and finance costs directly. Instead, a tax relief of 20% is available as a tax reduction. However, landlords of non-residential properties, furnished holiday lets, and corporate landlords can deduct these costs directly in calculating their taxable profits.
Partner Note: ITTOIA 2005, Pt. 3.
Disclaimer: All the information provided in this article on Deductible Expenses, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.
