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What are landlord allowable expenses?

by | Dec 21, 2022

Home $ Property Management $ Work With Private Landlords No Agents $ What are landlord allowable expenses?

You might be allowed to deduct some costs from your income as a landlord. These charges are referred to as “landlord allowable expenses,” and may cover the price of routine maintenance and repairs, utility costs, insurance, service fees, and travel expenses associated with the property.

Additionally, you might be eligible to deduct professional fees and the direct costs of maintaining the property too. It is important you understand how the rules differ around landlord allowable expenses for mortgages in furnished holiday lets too.

Certain costs, such as personal expenses, cannot be claimed though so you must keep a thorough record of all the landlord allowable expenses so you can claim the right tax deductions and give this information to the HMRC when required.

A landlord submitting their tax return with landlord allowable expenses included

What expenses can I claim as a landlord?

Not all of the expenses of a business in property can be claimed. In general, the things you can include in a list of landlord allowable expenses include utility bills, maintenance and repairs, insurance, travel costs and fees.

However, there are certain things you have to be aware of surrounding landlord allowable expenses that cannot be written in your tax return bill that you submit to HMRC and if you’re not sure about them, avoid it or consult a solicitor.

Are general maintenance and repairs tax deductible?

General maintenance and repairs of a property are possible to be claimed as a landlord allowable expense. In order to pay this cost the repairs would have to be by needed due to damage rather than needed due to an upgrade.

For example, if you wanted to install a new granite worktop in a kitchen and the old one was completely fine, this is for an upgrade. However, if it was broken, it would be completely reasonable for a landlord to replace it and count this cost as general maintenance and repairs under a landlord allowable expense.

Are utility bills included as a landlord allowable expense?

Utility bills include gas and electricity costs, water bills, and also the cost of broadband if you aren’t charging tenants for this. These landlord allowable expense bills will naturally fluctuate throughout the year, especially in the winter months when people tend to use a lot more gas.

If a landlord includes the price of utility bills within the rent, they would likely have to charge a higher rent overall. Either way, it is a landlord allowable expense as a landlord cannot legally let their property out without providing these basic services to a tenant.

How does insurance work as a landlord allowable expense?

There are four different types of insurance and some of these insurances may be included already in the mortgage payment. This is unfortunate if this is the case because mortgages are not able to be taken off completely as a landlord allowable expense.

Therefore, any insurance that is taken outside of a mortgage can be used as a landlord allowable expense such as contents insurance, landlord insurance or potentially rent guarantee insurance. Tenants do not need to take out any insurance on a property, apart from contents insurance. As this is the contents of the property are the only things they would own. 

However, this is not able to be deducted as a landlord allowable expense as a tenant’s income is entirely separate from a landlord’s. If a landlord asked a tenant to cover the expense of insurance, this is illegal as it is a tenant’s choice whether they want to take out insurance or not and they certainly aren’t responsible for the structure of the building or the rental property business.

Image representing home insurance which is an allowable expense

Fees for professional services

From the minute a property is sold it is subject to fees as there are multiple professionals involved with the transaction and the letting out of a property. Some of these may include solicitor fees, mortgage fees, letting agent fees for landlord referencing, estate agent fees or those associated with making sure a property is in compliance with the regulations to obtain a landlord licence.

These are all able to be classed as landlord allowable expenses because they directly impact the profitability of a rental property. As a result, it is in a landlord’s best interest to reduce these fees as much as they can to increase their profit margin. If you are a landlord without a letting agent, you may be able to get away without some of these fees as you conduct these services yourself.

It is useful to note, fees incurred as a result of breaking the law or having a breach in a tenancy agreement cannot be used as a landlord allowable expense. When a landlord submits their tax return at the end of the financial year, this will not be an option to include as an allowable expense so it is not worth trying.

Can you deduct the cost of travel as an allowable expense?

Travel costs associated with the duties that you have to carry out with a business can be deducted as an allowable expense. If you have a car, You will be able to claim 45p per mile for the first 10,000 miles in a year and 25p for any miles over this 10,000 mile threshold.

The rules for motorcycles and bikes are slightly different but you can check what the exact rules are if you are travelling landlord and how to claim this as a landlord allowable expense here

Direct running costs

Direct running costs of a property are associated with the cost that you have to pay as a landlord  allowable expense. This includes the condition that you have to pay a property manager or anyone who helps you out with the business of your property such as a locksmith for the cost of changing locks.

If there is any concierge cleaning or maintenance service that runs regularly on a property, this is all classed as direct running costs and are landlord allowable expenses.

Direct running costs that you may have forgotten about include phone calls and mobile payments. Only phone calls, texts and emails sent directly to deal with the professionals that deal with property and tenants can be classed as a landlord allowable expense.

Also, the costs of cleaning the property between tenancies can be included in a landlord allowable expense. However, this may vary based on whether tenants have to pay for professional cleaning.

Are marketing costs landlord allowable expenses?

As you try to find a tenant, you may have to advertise the property on the open marketplace. This can include physical advertising, or paying letting agents in real life to tap into their network to gain access to a database of prospective tenants who are actively looking for a property.

All of this requires money and this money can be written off as a business expense so are landlord allowable expenses.

Marketing strategy that is an allowable expense

How are landlord allowable expenses different for furnished holiday lets?

The reason why a lot of landlords like furnished holiday lets is that unlike traditional buy to let mortgages, the mortgage repayments are able to be written off as a landlord allowable expense. This means a landlord can produce a greater profit throughout the year.

Having said this, furnished holiday lets cannot be rented for the entire year so you will not be able to take advantage of a full calendar year to collect rental payments. 

There are a few requirements to class a property as a furnished holiday let and you cannot just convert your property to one if you have a buy to let mortgage to take advantage of these landlord allowable expenses as there may be terms in your mortgage that prevent you from doing so. As a result, if you are interested, read the article on furnished holiday lets to clear things up. 

What expenses aren’t allowable expenses for a landlord?

When dealing with a property business, there are certain expenses that cannot be deducted and aren’t classed as a landlord allowable expense. If you try to lump any of these expenses within landlord allowable expenses and write this off your tax bill and the government finds out, this could result in you having to pay back the tax you owe in interest in years to come.

As a result, strictly avoid any of these landlord allowable expenses or treat them with caution because there are instances where there is overlap and you want to make this clear in your tax return.

General expenditure

As you collect rental income from a property, you will start to build up capital. As you have already paid tax on this income through paying yourself as an employee, this income is now classed as personal and there is no further way to claim back any landlord allowable expense as the funds are now outside of the property business.

After you have paid yourself from a property, anything you class as an expense you therefore have to absorb as a personal expense as this money is now treated as if you were an employee spending your salary rather than a landlord trying to run a business with landlord allowable expenses.

Is clothing for your property business a landlord allowable expense?

In recent times, the rules around clothing have become a lot stricter. Gone are the days of a landlord forming a limited company, creating a logo for the company and putting that on all of their clothes and having this written off as a landlord allowable expense on their tax bill.

You now have to prove that clothing is necessary to run your business due to you having to represent yourself for marketing or events. This means landlords may still be able to use some clothing as a landlord allowable expense perhaps as they attend events through landlord associations or have meetings with tenants to represent their property portfolio on a large scale.

However, any clothing that isn’t mandatory to produce a profit from a business is just a personal expense that has to be absorbed through a landlord’s earned income, not a landlord allowable expense.

Clothing that isn’t able to be classed as a landlord allowable expense

Total mortgage payments

Because of recent changes to tax laws, mortgages are no longer a landlord allowable expense, at least not entirely. What is meant by this is instead of mortgages being able to be deducted from the net rental income of a property before tax is paid, there are now tax credits.

This is where a landlord pays tax on the net rental income of a property and isn’t able to deduct mortgage payments from this figure. Then, 20% of their mortgage payments are reimbursed back to them which is known as a “tax credit”. For more on how the process works click here.

How to claim landlord allowable expenses

Landlord allowable expenses can be claimed in two ways, through your personal income tax if you have a property in your personal name and you’re self-employed or through corporation tax if you have set up a private limited company.

Usually, unless a landlord has a larger portfolio of properties and their income exceeds the higher rate income tax threshold of £50,270, it does not make sense to have a limited company.

If you have a property in your personal name, the process of claiming for landlord allowable expenses starts with submitting a tax return at the end of the year to the HMRC. It is not necessary to show them all of the proof of earnings you have but they may ask for it so it would be a good idea to keep them close to hand. Visit the government website here to start the process.

This page of the government website is tailored for landlord’s who have a private limited company and are looking to submit their tax return with their landlord allowable expenses. This process goes into slightly more detail than if someone was self employed as you need to prepare two documents. An annual statutory account of your bank statements and then a company tax return.

In summary

To summarise, landlord allowable expenses are expenses related to rental properties that can be claimed as deductions on a tax return. They are generally able to be classed as a landlord allowable expense if the expense is considered necessary in order for the business to run or produce a profit.

Therefore, it is important to approach charges related to personal expenses with caution when submitting a tax return as you may start claiming more than you are eligible for. All in all, whether you are self-employed or own a corporation, you will have to follow the government’s advice for submitting a tax return at the end of the year on their website.

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