UK Resident Landlords
- Just because you have spent money on your property portfolio doesnít
automatically mean you get tax relief
- Some items of expenditure never qualify for tax relief
- Some items of expenditure are only allowable against the gain
when you sell the property
- Some items of expenditure may be deducted from rental income in calculating
- Some items of expenditure may not be claimed as a deduction but are
subject to special rules
The costs and expenses associated with abortive purchases are never
allowable. For example, if you are thinking of buying a property and pay
to have it surveyed, and then decide not to proceed, there is no tax relief
for the survey costs.
The costs and expenses associated with the purchase are treated as part
of the purchase price and may be deducted from the gain (or added to the
loss) when you sell the property. Such expenses might include legal (conveyancing)
fees, survey fees, stamp duty etc. You should keep a record of these together
with the supporting receipts so that you can claim relief for the expenditure
when you sell.
The costs and expenses incurred in maintaining your rental income are
generally allowable and fall into the following categories:
- Rent (including ground rent), rates, insurance and other like items
that you pay whether the property is rented or not.
- Repairs, maintenance, renewals (see below for special rules).
- Finance charges and interest, including arrangement fees, mortgage
interest etc (see below)
- Legal and professional costs including letting agents fees, accountants
fees, legal fees on rent collection etc. (see below)
- Costs of services provided e.g. cleaning.
- Other expenses e.g. advertising, travel (see below), use of home as
Repairs, Maintenance, and Renewals
First you must separate the fabric of the building from its furnishing
and equipment. (Imagine it is turned upside down and shaken, what
falls out is furnishing and equipment). For the avoidance of doubt,
furnishings and equipment includes white goods, carpets and curtains
but not fitted kitchens or central heating.
As regards the fabric of the building
- Maintenance and advertising costs incurred before or between lettings
are allowable as long as they were incurred in contemplation of,
or preparation for or during that letting.
- The cost of a replacement kitchen or bathroom is allowable against
rental income. The cost of a new or extra bathroom, kitchen or any
other facility is treated as part of the cost of the property and
is allowable against the gain
when the property is sold.
- The cost of replacing heating systems is allowable as are all
As regards the furnishings and equipment
- The initial expenditure never qualifies for tax relief.
- Repair and maintenance of the furnishings and equipment always
qualifies for tax relief.
- From 5th April 2013 you may only claim the wear and Tear allowance
and this is only available in respect of FULLY furnished properties
For more details see our Newsletter Changes
to wear and tear allowance.
- The Wear
and Tear Allowance is equal to ten per cent of the gross rent
received LESS the entry for Rent, (including ground rent), rates,
insurance and other like items that you pay whether the property
is rented or not. (If the rent is £20,000 and the entry for Rent,
rates etc is £1,000 the wear and tear allowance will be £1,900)
As regards mortgage interest
- Only the interest is allowable. There is no tax relief for the
repayments of capital. Always keep the mortgage interest certificates
to evidence the figures included in your tax return.
- You may claim tax relief on mortgage interest if you re-mortgage
as long as the aggregate value of the mortgage(s) does not exceed
the value of your property when you first let it. For example Mr
Jones bought a property for £100,000 in 1997 with a mortgage of
£80,000. Then you he let it in, say, 2002 when it was worth £150,000
and it is now worth £250,000. He can remortgages it for £200,000
but only the interest on £150,000 of the loan is allowable because
this was the value when he first let it. Interestingly it doesnít
matter what he does with the money. He can spend it on absolutely
anything and it will still qualify for tax relief.
As regards legal and professional costs
- If the term of the lease exceeds one year then your legal fees
for preparing the lease and the letting agentís fees are not allowable.
The legal and agentís fees on renewing any lease of less than fifty
years are allowable, but the legal and agentís fees that relate
to the payment of a premium on the renewal of a lease are not allowable.
As regards travel
- Travel expenses are allowable as long as the purpose of the travel
was solely the maintenance of rental income. If you travel to your
property, check it, instruct builders, visit the letting agent then
travel back Ė the cost of travel is allowable. If you stop off on
the way to visit a friend or do some Christmas shopping there is
a duality of purpose in the visit and all the costs are dis-allowed.
This is a particular problem (and a big temptation for those travelling
to the UK from abroad. Donít be tempted!
As regards your home office
- You may claim the additional costs you incur that you would not
incur if you did not work from home. Normally this will be stationery
and the additional heating and lighting cost. HMRC is particularly
keen to stop landlords making unrealistic claims!
As regards training etc
- This will normally be included with ďother itemsĒ. To the extent
that the cost of training provides you with new knowledge then there
is no tax relief. To the extent that it refreshes or updates existing
knowledge then it is allowable.
© Landlords Tax Services Ltd 2008 All Rights Reserved - In an
article such as the one on this page we can only give brief general
guidance and cannot cover all situations. This guidance may not
cover all your personal circumstances and so you should not rely
on it. Before taking action or not, always do your own specific
research and seek appropriate professional advice which takes
into account your personal circumstances, with the full facts
of the case and all documents to hand. Neither Maurice Patry F.C.A.
nor Landlords Tax Services Ltd can be held responsible for the
consequences of any action or the consequences of deciding not