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Rental Accounting

Top 5 Allowable Expenses Missed By Landlords

Knowing which costs are counted as allowable expenses for landlords will help you maximise your buy to let property business deductibles and increase overall profitability. Buy to let tax relief has changed over the years with the government restricting various financial deductions such as mortgage interest in the section 24 tax changes.

In this article, we outline the five main categories of allowable expenses for landlords and what investors need to know in order to accurately deduct them from their rental income at the end of the tax year. Ultimately, missing any of the expenses outlined in this article because you were unaware they were allowable or unsure how to track and deduct them could cost you thousands.

5 Main Categories of Allowable Expenses for Landlords

Allowable expenses for landlords can be bracketed into five main categories. For an expense to be claimable against your buy to let income it must be used ‘wholly and exclusively’ for the management of your property. In this context wholly and exclusively means that the expense cannot also be used for personal or other business use. For example, if you buy office equipment, if you use this equipment for your personal use it would no longer qualify as an allowable expense.

These main five categories are:

  • General business expenses – For example, office expenses, travel costs such as petrol, phone and broadband, marketing and letting agents’ fees
  • Professional fees – For example, your accountant fees, costs of surveyors, solicitors,  building insurance, and content and rent protection cover.
  • Service fees – For example, gardening costs, cleaning, decorating, and building services
  • Repairs – Only repairs or replacements that do not count as an improvement to the property. Expenses that count as improvements are not allowable.
  • Property charges – For example, council tax, and utility bills.

Many costs incurred when running a buy to let property, however, are not allowable expenses. This includes:

  • Improvements – work done to the property or costs incurred that improve the value of the property are not allowable. This includes things like new furniture or appliances or extensions to the property.
  • Restoration – If you buy a property that is not in a rentable condition the costs to make it rentable are not allowable buy to let expenses.
  • Interest payments – buy to let tax relief on the interest of finances for buying a buy to let property has been replaced with a tax credit under section 24 tax changes.

Allowable expenses for landlords explained

Office costs

Office costs include expenses like your phone, broadband bills, and office equipment. However, it’s important to note that only the portion of the expense that is used for your rental business is an allowable expense.

Travel costs

Some travel costs related to the management and running of your buy to let business are allowable. For example, you can claim petrol, vehicle tax, insurance and repairs, and bus and train fares. Again though, you can only claim for the travel associated with running and managing your business. If you have a vehicle that you use to get to and from your rentals 10% of the time you can claim 10% of the related expense. You can’t claim private travel or regular travel.

Marketing

Costs associated with marketing your property during vacancies such as letting agents, photography, creation of virtual tours and videos and other marketing material.

Fees to professionals

The fees that you pay to professionals for services such as accountancy, bookkeeping, interior design, etc are all allowable expenses. You can also claim for expenses related to legal services such as a solicitor in connection to debt collection, evictions or some other necessary legal service.

Insurance

You can claim your insurance costs as allowable buy-to-let expenses. The main examples of this include building and contents insurance, vehicle cover for your business vehicle.

Fees for services

If you hire a specialist to carry out work on your properties, you can claim their charges against tax. Include charges from builders, plumbers, electricians, decorators, kitchen fitters, gardeners, cleaners, window cleaners, and carpet fitters.

However, you can only charge for work that is classed as repairs. Any work to improve the property is not allowable.

Repairs and replacements

Repairs to your property are an important and potentially large allowable expense. It’s important to note, that whilst we have bracketed repairs and replacements together, the HMRC makes a clear distinction between the two.

A repair is any work undertaken that returns the property to its original condition. Examples of this include repainting the property between a tenancy, mending broken appliances or plumbing, and repairs to structural damage. Importantly, these repairs are only classified as such if they do not increase the value of the property.

A replacement on the other hand is when an asset is not repairable and is replaced with an item of equal value. For example, you might replace curtains, light fixtures, or the carpet after several years to return the property to its original condition. Again, any increase in value is not an allowable expense.

When making claims for repairs you can also include the cost of materials and any fees paid to specialists that carry out the work.

Find out more about fair wear and tear and the replacement of domestic items relief →

Property charges

There are many associated costs with owning and running a buy to let property. Some of these include things like ground rents, council tax, utility bills, etc. if you are responsible for paying these costs then they are allowable expenses. If however, your tenants are responsible for these expenses you can only claim for any period where the property is vacant.

3 major rental expenses that are not allowable

Restoration costs

Any costs associated with restoring a property to bring a property up to a habitable standard and make it rentable cannot be deducted. This includes things like the purchase costs and repairs, conversions, or other building work that need to be completed before the property is in a rentable state.

Improvements

Any work done to a property that improves the property’s overall value is counted as an improvement and is not an allowable expense. For example, if you converted the garage to another bedroom this would be an improvement.

Or if the appliances in the kitchen were broken and you replaced them with better more expensive appliances, this also would count as an improvement and only a partial amount of the cost (the cost of a like replacement) would be an allowable expense. As an example, if an appliance cost £2,000 originally and you replaced it with one that cost £3,000 you would only be able to deduct the original cost of £2,000.

Interest payments

In the past, you were able to deduct the whole of the interest payments on buy-to-let mortgages or other loans. This is no longer true. This buy-to-let tax relief has been phase out and replaced with a tax credit allowing you to claim back 20% of the annual interest payments as a tax credit. Find out more about the section 24 tax changes here.

How to Claim Allowable Expenses for Landlords

When you add up all of your allowable expenses for the tax year, you put the total amount on your Self-Assessment tax return. At this stage, you don’t need to include receipts, but it’s still important to keep accurate records as, should the HMRC later ask you for evidence, you could be fined for submitting incorrect information.

Using software like Landlord Studio you can easily digitise receipts at the point of sale and securely store them in our secure cloud server attached to the entered expense. Find out more →

Generally speaking, you should keep all of your receipts for six years. However, you don’t need to keep the original copy, as the HMRC allows digital copies. Keeping track of six years worth of paper receipts can be challenging, not to mention the space they take up. Receipts can very easily get lost or fade beyond recognition.

This is another reason to ensure the income and expense tracking software you employ allows you to easily digitise receipts. The HMRC can investigate your property finances at any time within these six years.

For more information on how to claim your landlord allowable expenses, including the deadline for claiming, you should visit the GOV.UK website.

Final words

This is by no means a definitive list of not allowed and allowable expenses. However, we have outlined and detailed the larger more major expenses that many landlords are unaware of.

It is important to carefully and accurately track all of your expenses with a proper system such as Landlord Studio. Tools like Landlord Studio will enable you to keep detailed and accurate records of all the allowable expenses related to your buy-to-let property.

Not only will this enable you to maximise your end of year claimable expenses, increasing your property’s overall profitability, but Landlord Studio’s professional reporting features can also give you a more nuanced and detailed overview of your rental property portfolios finances.  Additionally with features such as automated rent reminders tenant invoicing and document storage you can more easily manage tenants and your properties.

On a final note, with the MTD changes coming into effect in 2024 landlords need to be looking for solutions to keep digital records so that they can stay compliant with the HMRC.

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