Buy-to-Let Guide
Allowable Expenses Guide
You will pay tax on the “net rental income” falling in each tax year to 5th April. Net income is calculated using the total rental income less allowable expenses.
Listed below are common types of expenses that you can deduct:
Listed below are common types of expenses that you can deduct:
general maintenance and repairs to the property, (but not improvements, such as replacing a laminate kitchen worktop with a granite worktop)
water rates, council tax, gas and electricity
insurance, such as landlords’ policies for buildings, contents and public liability
costs of services, including the wages of gardeners and cleaners
letting agent fees and management fees
legal fees for lets of a year or less, or for renewing a lease
accountant’s fees
rents (if you’re sub-letting), ground rents and service charges
direct costs such as phone calls, stationery and advertising for new tenants
vehicle running costs (only the proportion used for your rental business – it is often easier to claim the simplified pence per mile method)
Expenses you can’t claim a deduction for include:
the full amount of your mortgage payment - only the interest element of your mortgage payment can be offset against your income (see phased-in changes regarding mortgage interest below)
personal expenses - you can’t claim for any expense that was not incurred solely for your property rental business
extending the property and some building work. These costs are classed as capital and can only be included when you dispose of the property within the capital gains tax calculations
Mortgage & loan interest or alternative finance charges
Up to 5th April 2017, all interest or finance charges incurred on the purchase of the property are allowed in full against the rental income for that year.
From 6th April 2017 onward, interest and finance charges will be restricted to basic rate (20%) tax relief. These changes will be phased in as follows:
Tax year ending 5th April 2018 25% will be restricted to basic rate tax relief Tax year ending 5th April 2019 50% will be restricted to basic rate tax relief Tax year ending 5th April 2020 75% will be restricted to basic rate tax relief Tax year ending 5th April 2021 100% will be restricted to basic rate tax relief
The above changes could have an adverse effect on some landlords. Please contact our experts to assess the impact on your overall tax position.
