Tax Deductions – What deductions and expenses can I claim against my rental income?
Taxation of rental income is as investment income taxed at your marginal rate, though because rental income comes under Schedule A you can claim expenses very much as if you were running a business.
Do some in-depth research and/or get professional advice on property tax matters as your total tax position may be affected and you need to look at the this “in the round” taking into account long-term tax planning, ideally before you invest. For example, if you are married you can split your letting income between you both to maximise personal allowances and minimise the highest taxable rates.
Selling your “principal private residence” is exempt from captial gains tax (CGT) but investment property is subject to CGT at 40%. Where you have lived in your rented property, gains are payable propotionately on the time of rental occupation and being resident abroad may also reduce your CGT payments.
Taxable income is gross income less allowable expenses incurred “wholly and exclusively” for letting and managing your property. There is no VAT on residential rents.
Under self-assessment Schedule A you need to complete the Property Income section of the tax return and as a landlord you are required to keep records of all income and expenditure affecting your rental properties for 5 years. Keep copies of all invoices and receipts plus inventories as evidence of maintenance, repairs, improvements, furniture replacement costs, fixtures and fittings etc.
What can I claim?
– Interest on a mortgage and loans.
– Insurance – Landlord’s policies – Buildings, contents and public liability.
– Rental guarantee insurance, emergency breakdown and maintenance plans etc.
– Utilities payments by the landord – often in void periods – gas, water, electricity etc.
– Professional fees – accountants, solicitors, management.
– Reapairs and maintenance but not improvements.
– Council tax paid by the landlord during voids – remember, if you claim exemption on Council Tax as being unfurnished, you cannot then claim furniture allowances against tax.
– Service charges and ground rents in the case of leaseholds.
– Repairs, maintenance and decoration, but not improvements.
– Your unused personal allowances – for example using your spouse’s allowances.
– You have the option of claiming for replacement costs on furiture or the 10% wear and tear allowance, but you cannot chop and change on this. The initial cost of furniture, like improvements, cannot be claimed as an expense.
– Travel expenses for property management – to and from the property
– Basic stationery costs.
You need to record and keep records of captial items (a balance sheet with assets and liabilities) for each property that you own to assits in claiming CGT allowances when you (or your heirs) dispose of the property. Keep records of purchase price, buying costs, improvements made (all those costs you cannot claim as expenses) selling costs and the sale price.
©LandlordZONEâ All Rights Reserved – never rely totally on these standard answers. Before taking action or not, always do your own research and/or seek professional advice with the full facts of the case and all documents to hand.