Managing small business expenses – what you can claim as a landlord

By Jake Martin

3 min read

It’s always one of those grey areas: can I? Can’t I? Should I? Yes, we’re referring to expense management for a landlord. Here’s a rundown of what’s available to you and, more importantly, some tax changes you need to be aware of.

Information related to deductible landlord expenses has never been so valuable, since the introduction of major changes to landlord tax in last summer’s budget. The changes – which will be phased in from 2017 – have been deemed unexpected and complex by property analysts. According to The Guardian, landlords worst affected will pay double or more tax on their investment, making some financially unviable and forcing them to either increase rent or sell up.

Tax deductible 

Landlords yet to understand the full implication may wish to book some time with their accountants, or set some time aside to understand legitimate business and landlord expenses. If you’re not already using financial management software to automate this process, now is the time to consider investing in it – it’s tax deductible.

Being able to judge the value of your property investments will also never be more pertinent, and software allows you to see at a glance what’s going on, and where you may make some changes in your own circumstances. Equally important to navigate is the different allowable expenses as set out by the HMRC across different investment properties: residential, commercial properties and furnished holiday lettings. Here, we’ve attempted to provide you with a starting list but, given the changes afoot, you should seek out specialist advice with your accountant.

Let’s start by organising landlord expenses into a few broad categories:

  1. Maintenance and repair costs: The government sets a fine line between repairs and improvements, and anything in the realm of ‘renovation’ or ‘extension’ is deemed an improvement as it will add value to the property. These expenses can be offset through wear and tear expense claims. All ‘repairs’ – such as fixing a roof, a cooker or a broken window – are fine to claim.
  1. Capital costs: While capital costs for residential properties aren’t allowed, you can claim some capital allowances on furnished holiday lettings (such as tools, vans etc.) and also on commercial properties (such as a garage or lock-up area). The government publishes online help sheets on capital allowances and furnished holiday lettings to provide more detail.
  1. Tenancy and letting fees: If you are using an agent to find a tenant or manage your property, you’re probably paying around 10 to 15 per cent of your monthly rental income in fees, which is a deductible expense. However, if you are managing this yourself and you have costs associated with finding a tenant (advertising, tenancy agreement, credit checking, deposit protection etc.), you can claim these as expenses. Some legal fees can also be claimed, but double check these with your accountant.
  1. Mortgage fees and interest: This area has changed under the new reform, so where you were once able to use the mortgage interest to offset your tax bill, you will now be taxed on the rent received, not what is left over once mortgage interest has been paid. This may also apply to broker and arrangement fees for your mortgage.
  1. General running costs: Everyday expenses that you would pay in your own home – such as Council Tax, utility bills (gas, water and electricity) and other relevant service charges, buildings and contents insurance, cleaning and gardening – are also all legitimate claims. You can also add deductions such as accountant fees, phone calls, advertising and stationery.

From April 2016, the old 10 per cent ‘wear and tear’ ruling is changing, and will see landlords only able to claim on costs they have actually expended, so keeping track of your receipts via your expense management software will be timely and important from this year onwards.

 

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You purchased your property investment to help offset your income, so now’s the time to make sure it’s working hard for you by understanding all the nooks and crannies related to deductible expenses. Happy claiming!

To see how online accounting software can help you speed up your expense management, sign up for a free trial with QuickBooks.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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