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Allowable expenses on a rental property

What are the allowable expenses on a rental property?

Landlords looking at how to claim expenses on their rental property will also need to know what are the allowable expenses for the purposes of landlord tax.

I’ve been contacted recently by several landlords who were enquiring whether some of their recent building works on their rental property were an allowable revenue expense for their rental business. There appears to be a lot of confusion amongst landlords about what they can or can’t off-set against their rental income. We’ve written before about the sorts of expenses that landlords can deduct and how to avoid tax on rental income.

As part of my research I unearthed a really useful publication, the HMRC Property Rental Toolkit . It should answer many landlords questions. On pages 6-7 there is a very useful checklist, which landlords can use to work through their tax calculations to ensure they don’t miss anything in their tax calculations.

Remember, that where a landlord has multiple rental properties that you are looking at your expenses for the rental property business as a whole and not for each individual buy-to-let property.

Landlords can also use our free property management software to calculate their tax liability.

List of allowable expenses on a rental property

  • Water rates
  • Council tax
  • Gas bills
  • Electricity bills
  • Ground rent
  • Service charges
  • Letting agent fees
  • Legal fees for your rental business
  • Accountancy fees
  • Phone calls and charges in connection with your rental business
  • Stationary and admin costs
  • Advertising costs for your letting your property
  • Mortgage Interest costs (not after 2020)
  • Wear and Tear now replacement of domestic items relief (RDIR)

Revenue versus Capital

Any allowable expense on a rental property should be ‘wholly or exclusively’ incurred as part of a landlords rental business. It will end up being classified as either a revenue or a capital cost. We’ve included articles before about how to distinguish whether an expense is wholly or exclusively’ incurred as part of a rental business.

If the expense is a revenue expense, a landlord will be potentially liable to off-set it against any rental income, thereby reducing rental profits and income tax liabilities. Any capital costs will be included in your base costs and will be used to calculate what capital gains tax should be paid.

Repairs Versus Improvement of Rental Property

One of the main questions landlords get confused about is whether the expenditure is a repair or an improvement of their rental property. A repair is a revenue expense and can be off set against your rental revenue. If the work is an improvement it becomes a capital cost and will only come into play if a landlord sells their rental property.
An example of a repair would be the replacement of a slate roof. This would be allowable against a landlords revenue costs. If the costs related to a completely new roof, say as a result of an extension to the property – this would be considered to be an improvement to the property. As such the costs would then have to be added to a landlord’s base costs. These would then be taken into account if the landlords disposed of the property, and would be incorporated into the calculation of any capital gains.

Apportionment of Rental Income

Where it get’s slightly more complicated is where there are elements of repair and new in the same project. This happens quite a lot when it comes to refurbishment of a property. In simple terms if we take the roof example again. If a landlord decided to renew their slate roof at the same time as they were adding in a side extension doubling the roof area then how would they need to assess their tax liability for these works? This is where the concept of apportionment comes in. In this scenario you would need to have a cost for both the repair and new build elements. The repair or replacement of the roof would count as a revenue cost. The new build costs would be added to the overall base cost of your property and would be assessed if your property was sold and taken into account in the capital gains calculation.

The revenue helpfully give examples in their Toolkit of typical repairs undertaken by a landlord in their rental property. These include:

• exterior and interior painting and decorating
• stone cleaning
• damp and rot treatment
• mending broken windows, doors, furniture and machines such as cookers or lifts
• re-pointing
• replacing roof slates, flashing and gutters

For more details of how to account for general deductions and repairs have a look at the HMRC specific guidance manual pim2020

New materials

Another complication can occur with the effluxion of time where technology and building technology improves. For example until recently the replacement of UPVC double glazing was seen as an improvement over single glazed wooden units. This is no longer the case.

Taxation of rental business – ‘grey areas’

There are many grey areas of taxation for a landlord to navigate. If landlords need a second opinion why not post your questions to our landlord forum.

Landlords need to often take a view on whether it’s likely to be disputed that the new flooring or bathroom suite installed in their rental property would be picked up by the slightly overstretched HMRC as an improvement to their rental property or will just sail through their self assessment return as another repair expense.

What landlords always need to do is to have a well prepared and evidenced approach based on the latest taxation guidance to avoid tax return errors. Then at least they will stand a sporting chance of winning their argument if HMRC were ever to dispute their case and a landlord having to avoid a tax investigation.

15 Comments

Hi, I’m a landlord and a 3rd party has made claim against the land, which belongs to the property I own and rent out. Are the costs associated with defending this claim tax deductible?

Regards, Paul

Hi there. I’m a landlord trying to find out if the freeholders annual reserve/sinking fund charges are regarded as yearly repairs and maintenance tax deductibles or are capital charges to be set aside for Capital Gains Tax on disposal of the property?

Good question! I would guess if it allowable at all it would be a revenue expense i.e. repairs and maintenance as part of the service charge. Can’t see it working as capital because you can’t have a notional capital cost.

Just doing our tax return and I see that installing double glazing is doubtful for claiming for tax relief? Surely replacing rotting wooden single casement windows which provides the tenant significant benefits would be an allowable expense??

Hi Ian, I understand that the Revenue have generally conceded that double glazing is a revenue cost and counts as a repair and not an improvement. Not sure whether this would be the case for tripple glazing. One to ponder.

Can I check how costs incurred as part of preparing a rental property for sale would be classified please? For example home staging costs are clearly treated as eligible for capital gains tax in the US, but I can’t seem to find anything suggesting one way or the other here in the UK. Also, any repairs or maintenance undertaken while the house is being sold, after the tenants have left?

Current tenant wanted to erect a shed, the agent suggested the landlord should pay for it and erect it to avoid any problems. ….
How do i account for this? it cost £750

Hi,

I have had to replace the garden shed on a rental property as the previous one collapsed due to its age etc. Is this tax deductible?

Tricky if it replacement with the same size and spec it’s probably a revenue cost so yes allowable. If it’s much bigger / better could be classed as an improvement and therefore a capital expense but also allowable on calculating your base costs on sale for capital gains purposes.

Hello Chris,
I am a landlord. Our rented flat was in need of a refresh following the departure of tenants.
I decided to do the redecoration myself – which worked out to be 3 days work. (I am not a professional tradesperson.)
Can I include a charge for my own time as an allowable expense to be offset against income in my tax return?
Thanks

Have rental property – monthly service charges and major works charges…are both treated the same as expenses, I know the service charges definitely is please?

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