Allowable Rental Property Expenses Deductible for Tax

rental property expenses

Allowable Rental Property Expenses Deductible for Tax

 

Tax is payable on any profit you make from renting out property. However, you are able to deduct allowable rental property expenses from the income to decrease the amount of taxable income.

Paying tax on profits after allowable rental property expenses

Tax is payable on any profit you make from renting out property. How much you pay depends on:

  • how much profit you’re making
  • your personal tax circumstances

Profit is what you are left once you’ve added all your rental income together and taken away the expenses or allowances you can claim.

 

There are different rules if you’re:

We help taxpayers manage their property income reporting with our personal tax returns service.

But nowadays deductible finance costs are restricted.

Finance costs are now restricted, they include interest paid on:

  • mortgages on the property
  • any loans – including those to buy furnishings
  • overdrafts

If you have a loan for both commercial and residential properties, then you’ll need to apportion the interest for each type because only the residential properties finance costs are restricted.

The restriction basically makes it such that only the basic rate of tax can be saved on the deduction rather than the full marginal rate, if such was the case.

Allowable rental property expenses.

When we consider allowable rental property expenses we must keep in mind that they fit the rule that they are wholly and exclusively for the purposes of renting out the property.

A non-exhaustive list of other allowable rental property expenses are:

  • utilities such as water rates, council tax, gas and electricity.
  • insurance, contents and public liability.
  • costs of gardeners and cleaners.
  • professional fees such as accountants and some legal fees.
  • if you are sub-letting – rents, ground rents and service charges
  • general repairs to the property
  • letting agent fees and management fees

Allowances

Property allowance

If your expenses are small you may wish to instead consider claiming the property allowance, which is to claim up to £1,000 a year tax-free property income.

Allowances for replacement of domestic items

If you let out residential property (a dwelling house) you may be able to claim a deduction for the cost of replacing domestic items such as:

  • crockery, cutlery and other kitcheware.
  • materials, curtains, carpets, flooring.
  • household appliances like televisions, washing machines, freezers.
  • furniture that is movable for example beds, wardrobes.

Capital expenditure

So far the allowable rental property expenses we’ve discussed are of a “revenue” nature – that is a cost that relates only to the year we are reporting.

Expenses are ‘capital expenses’ if they will be used in the business over a longer period of time, such as when you:

  • add something to the property that was not there before
  • alter, improve or upgrade something that was existing
  • include the purchase of furnishings and equipment for the property

Capital expenses are not allowable and cannot be claimed against your rental income but you should keep records of them as you might be able to set them against Capital Gains Tax if you sell the property in the future.

Examples of capital expenses that would not normally be allowable:

  • adding an extension
  • installing a security system if there was not one before
  • replacing a kitchen with one of a higher specification

 

 

 

Comment (1)

  • KAYSWELL Reply

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    15 May 2022 at 3:24 am

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