Do you earn any income from property?
If so, the chances are that you have to complete a self assessment tax return. When calculating your income from your rental property, HMRC allow you to deduct a number of tax expenses. This helps you reduce your ‘profit’ from the rental income and means you pay less tax.
Our guide explains five of the allowable tax expenses you can claim on renting a house.
1. Repairs and Maintenance
Every property needs maintenance from time to time. The property might need a lick of paint, a new floorboard or a new shower. You may even have to replace old or damaged doors or windows.
Anything that is considered a ‘repair’ to the property is an allowable tax expense. However, you should be sure that you understand the distinction between a ‘repair’ and an ‘improvement’ as you are not allowed to claim for home improvements.
For example, if you decided to extend the property by building a conservatory, the cost of this is not an allowable tax expense. Replacing a leaking or old conservatory would generally be classed as a ‘repair’, however. Ask HMRC for guidance if you are unsure.
2. Professional Fees
You can claim the cost of allowable professional fees as a property tax expense. This includes legal fees for lets of a year or less, or for renewing a lease for less than 50 years.
You can also claim the cost of accountant’s fees – for preparing your tax return, for example – as a tax deduction.
3. Letting Agent’s Costs
If you let your property through a letting agent, the chances are that they will charge somewhere between 10 and 15 per cent of the monthly rental income as a fee. They may also make a charge for finding a tenant.
You can claim letting agent’s costs on your tax return as an allowable tax expense.
4. Household bills
If you pay the utility bills of the property that you rent (water, electricity, gas) or you pay the Council Tax, then you can claim these as an allowable tax expense.
5. Mortgage and Insurance
These are arguably the two biggest tax expenses you will be able to claim when renting a house.
Firstly, you can claim the interest on any property loan used to buy the property. You should remember that you can only claim the interest payments, not any capital payment. If your ‘buy to let’ mortgage is arranged on a repayment basis (a ‘capital and interest’ mortgage), you will only be able to claim the interest element of your payment.
You can also claim the premiums for any buildings and contents insurance that you have for the rental property.