What expenses can you claim on buy-to-let property?
In the 2015 summer budget, Chancellor George Osborne announced a number of changes to tax relief offered to buy-to-let landlords. Currently, all ‘financial costs’ incurred on a rental property can be written off against tax. This includes mortgage interest, which naturally represents a significant part of many buy-to-let landlords’ outgoings.
Starting from 2017, the policy is changing so that landlords can only claim relief from financial costs at the basic income tax rate of 20% – regardless of the tax bracket that the owner sits in. Landlords in the ‘higher’ and ‘additional’ brackets could see their tax relief drop by over 50% in 2020, when the new standards are fully phased in.
While this means very little for landlords who own their rental property outright, this change has caused panic in some parts of the buy-to-let community. Some landlords selling up their properties in anticipation; others have anticipated the need to hike their rents to make sure their investment doesn’t make a loss
But before you push the panic button, it’s a good idea to take stock and make sure that you’re currently deducting everything you can from your rental income.
Let’s take a look at what that includes.
As mentioned above, this is entirely tax deductible until 2017. You should be taking advantage of this while it lasts.
Letting agent fees
If you use a traditional agent to find a tenant, you can expect to pay 10-15% of the resulting rent as agency commission.
If you use an online-based letting agent like easyProperty, you will pay significantly less to find a tenant. With both types of agencies, these costs will be tax-deductible.
If you choose to rent your property privately (i.e. not through a letting agent), you will be able to claim back advertising, tenancy agreement, credit checking, referencing, deposit protection and professional inventory costs.
Maintenance and repairs
Any money you put into repairing your home is tax deductible. You won’t be able to claim on renovations or improvements – anything that will add value to your home – but you can offset the cost of fixing any maintenance and repairs. The type of repairs that are tax deductible are as follows:
- exterior and interior painting and decorating
- stone cleaning
- damp and rot treatment
- mending broken windows, doors, furniture and machines such as cookers or lifts
- replacing roof slates, flashing and gutters
Wear and tear
This is a bit of a grey area due to an evolving set of rules. However, you should be able to claim back either a general ‘wear and tear’ allowance or the specific cost of replacing items. It’s important to remember that this is only for fully-furnished properties, part furnished and unfurnished properties will not be covered in the ‘wear and tear’ allowance. The allowance is currently 10% of rent annually, but this is set to change. From 2016, it will instead allow landlords to only deduct costs they actually incur, rather than the 10% that stands now. The 10% ‘wear and tear’ allowance currently covers:
- movable furniture or furnishings, such as beds or sofas
- fridges and freezers
- carpets and floor-coverings
- crockery or cutlery
- beds and other furniture
Leasehold ground rent costs
If you are in a leasehold property, you will probably have to pay ground rent to the freeholder. This is for basic maintenance and cleaning communal areas, but might also include security. You can also claim back on any on-site services.
Council tax and utility bills
If you pay any bills to pay on behalf of your tenant, you can claim back the whole cost. You will also be able to claim these costs during void periods.
Other expenses you can claim are things like costs of travelling between properties, phone calls and stationery. If you’re not sure about which expenses you can claim back against tax, you should really consider hiring an accountant. After all, any fee you pay your accountant is also, you guessed it, tax deductible.
Reducing your outgoings
Landlords who use traditional letting agents to find tenants will lose an average of 10-12% of their monthly rental income to agency commission. If your agency also manages the property and collects the rent, this number can rocket to over 20%. These enormous fees are one of the reasons why many landlords are now turning to a new breed of estate agents like easyProperty.
By allowing our landlords to host their own tenant viewings, you can get your property let for £99 inc VAT. This pack includes advertising on Rightmove and your own dashboard to manage enquiries, arrange viewings and accept tenants.
Click here to find out more about how easyProperty can help you keep your buy-to-let investment profitable
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