The life of a landlord has got much harder over the past few years. Higher interest rates, stagnant or falling property values and unfavourable changes to the tax system mean that some property owners are making a loss on their investment.
That makes it more important than ever that landlords claim for all the expenses they can to reduce their taxable profit. Fortunately, there is a wide range of reliefs and allowances available. So how can landlords ease the financial strain?
Fixtures and fittings
Generally if tenants break or damage a fixture or fitting, they are responsible for the cost of making good.
However, where the damage was not the tenant’s fault, eg, storm damage, a broken window from a break-in or a blown-down fence, landlords are allowed to claim for the cost of repairs, minus any money received from an insurance claim.
Fixing roof or guttering damage caused by bad weather is claimable. However, in most cases these costs will be recoverable via buildings insurance, leaving the claim as the excess payable on the claim.
You can claim for the cost of repairs done on the property as well as that of replacing kitchen white goods or bathroom units. However, the new units should be of the same quality as the old ones. Only replacements of the same quality can be fully claimed for: the landlord must bear the cost of the difference in price between higher quality and like for like goods.
The boiler of a rental property will inevitably go at some point and HMRC allows claims in full for the purchase and installation costs of a new like-for-like boiler.
Landlords can claim for fixing faults with the supply of water, gas and electricity –which is of course net of any sum received in an insurance claim.
Redecoration and maintenance
External maintenance to walls, paths, roofs and so on is also claimable but as ever the landlord should not claim for the difference between like-for-like replacements and improvements.
HMRC sees redecorating as maintenance so any such costs are fully claimable.
Ground rent and service charges
Landlords who let out flats will in all likelihood have to pay ground rent to their freeholder. This is usually a much smaller sum than the rent received from the tenant and is typically about £150 to £600 a year. This is fully claimable. The same goes for monthly service charges for maintenance and property management, which range from about £80 to £250.
Most landlords do not own their properties outright and it is a condition of their mortgage policies that they have buildings insurance. Fortunately this cost can be chipped off the tax bill.
One improvement that it is possible to claim for is replacing a broken single-glazed window with a double-glazed one. This is because the double glazing is incidental to the repair.
If the let property is a house (or flat) in multiple occupation (known as an HMO)– which is to say there is an individual tenancy agreement for each person or couple living there – then the landlord should pay the council tax and it is a claimable expense. Where the property is let as a single household then it is the tenant or tenants’ responsibility to pay it and it is not a claimable expense.
Landlords often use the period between tenancies to spruce up a property. The costs involved such as gardening, redecorating and professional cleaning can be deducted from their tax bill so employed landlords should consider whether or not it is worth giving up their valuable leave days to do it themselves, particularly in the case of window cleaning and house cleaning where they are unlikely to be able to do it to the same standard.
Most landlords prefer to let an estate agent find their tenants. This is a substantial cost – most charge the equivalent of a month’s rent for their tenants’ finder fee – but fortunately it is fully claimable and the landlord has the peace of mind of knowing the deposit is securely stored and the new tenant has been through credit checks and references.
You can’t claim for any legal costs involved in letting your property for the first time or for more than a year. However, where the let is for less than a year, you can claim. Any legal and professional fees incurred for reletting a property are claimable as long as the new lease is for less than 50 years. You can also claim for the cost of evicting tenants.
Furnishings and contents
You are not allowed to claim for replacing furniture and everyday things like crockery or bed linen as maintenance costs. However, they are claimable under the heading of domestic items relief. To qualify these sorts of items should be of low value and need to be replaced regularly (nearly every year).
You can claim £1,000 a year in property allowance if you don’t claim for your expenses, in effect giving you £1,000 of tax free property income. Most landlords, especially if they let flats with management charges and ground rent, will be better off not claiming this relief and claiming for actual expenses.
If you share the property with your tenants you can get a reduction on capital gains tax if you sell your home.
You can claim for vehicle and fuel costs relating to managing your property, also for advertising for tenants if you aren’t using an estate agent. Any professional fees or subscriptions paid in your capacity as landlord are claimable, as are phone calls relating to your property business. And the cost of getting rid of worn-out furniture and appliances is allowable.