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Landlord Studio, Rental Accounting

Tax Deductible Expenses for Landlords

As a Landlord, you are bound to rack up a whole host of expenses. Whether that’s from finding your tenants, property maintenance costs, the property management software you use like Landlord Studio, or the company you employ for property management, or even if it’s just the cleaner you send in.

The good news is that a lot of these costs can reduce your tax bill at the end of the year. However, this is all the more reason to manage your accounting properly with software like Landlord Studio.

Whilst this may sound all well and good. This process can be a bit complex, to say the least. In this article, we outline the main things you need to be aware of and detail how you can make the most out of the allowances and tax relief options available.

What Are the Allowable Expenses a Landlord Can Claim?

rental income tax

As a general rule, a landlord can claim any of the expenses that are incurred from running and maintaining their property.

If the rent you charge covers utility bills or council tax you will need to count this as part of your rental income and then deduct those costs as expenses.

The most common kinds of expenses landlords claim are as follows:

  • Utilities eg. Water rates, gas, electric, broadband;
  • Council tax;
  • Landlord Insurance;
  • Services eg. gardener, cleaner;
  • Letting agents fees
  • Property management software;
  • Accountant fees;
  • Direct costs related to the property such as phone bills, stationery, business cards, website hosting, etc.;
  • Repair and maintenance expenses;
  • Some mortgage interest (this relief recently changed find out more about it here.)

The expenses should be incurred wholly and exclusively as a result of renting out the property. Where only part of the expense meets that criteria you can deduct part of the expenses from your rental income.

For example, you let only part of your home, you would have to portion part of the expense. For more information about what is an allowable expense consult your tax advisor.

Learn how to accurately and efficiently track tax-deductible expenses with Landlord Studio →


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Making Improvements to Your Property

When it comes to making improvements on your property you can’t deduct these costs as expenses. For example, you add a conservatory or loft conversion which increases the value of the property. These aren’t deductible expenses, unfortunately.

You may though be able to use the costs of these investments to reduce your capital gains tax when you come to sell the property.

You will want to consult with a professional to discuss your options and what records need to be kept.

Property Allowance

The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property. If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income. You cannot use this allowance on income from letting a room in your own home under the Rent a Room Scheme.

Landlords’ ‘Wear and Tear Allowance’

rental income tax

You used to be able to claim expenses for the wear and tear of items if you supplied your property furnished. For example, cookers, carpets, beds, and televisions.

The wear and tear allowance allowed you to claim a maximum of 10% of the net annual rent (income fewer expenses) each year.

This though has now changed. The government now allows you to claim tax relief on anything you spend on replacing what it labels as a ‘domestic item.’

Crucially, this only applies to items you are replacing. You can’t claim tax relief on the actual cost of kitting out a property for the first time with furniture or appliances. It can only apply when an item is genuinely replaced and no longer used in the property.

What Is ‘Replacement of Domestic Items Relief’?

The government lists several examples of what domestic items qualify for this new relief. These include:

  • Beds;
  • Carpets;
  • Crockery or cutlery;
  • Curtains;
  • Fridges, washing machines, etc;
  • Sofas.

It’s also well worth noting that you can only claim like for like replacements. Meaning, if you buy a fridge for £500,  but when you come to replace it the same model is only £250. You would only be able to claim the £250 relief.

You can also claim for the cost of disposing of items (usually electrical goods).

How Does This ‘Replacement of Domestic Items Relief’ Work?

An example:

It’s the end of a tenancy and a few things are looking a little bit shabby. You do a walk around and decide to replace the curtains for £200, a washing machine for £250 (which also costs £50 to dispose of) and a new bed for £400.

The total relief you can claim is £200 + £250 + £50 + £400, which amounts to £900.

This can be deducted from your annual rental income to work out your tax bill at the end of the tax year.

Learn how to accurately and efficiently track tax-deductible expenses with Landlord Studio →

We hope you found this blog interesting! However, do note that it should not be used as a substitute for competent legal and/or other advice from a licensed professional.


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