As a landlord in Newport, navigating the world of taxes can be a daunting task. However, understanding and utilizing allowable expenses can significantly reduce your tax bill while ensuring you're paying a fair share. In this guide, we'll walk you through what allowable expenses are, what you can claim, and how they impact your tax bill.
What Are Allowable Expenses?
Allowable expenses, as defined by the gov.uk website, are expenses that are "wholly and exclusively for the purposes of renting out the property." These expenses can be deducted from your rental income, reducing the amount of taxable profit you'll need to pay tax on.
What Can You Claim For?
As a landlord in Newport, there are a range of expenses you can claim, including:
General Maintenance and Repairs: This includes expenses for upkeep and repairs to the property, excluding improvements.
Utilities and Council Tax: Expenses such as water rates, council tax, gas, electricity, ground rents, and service charges can be claimed.
Insurance: Landlords' policies for buildings, contents, and public liability costs are allowable expenses.
Professional Fees: Fees for services such as management, rent collection, marketing, accountants, surveyors, and solicitors can be claimed.
Advertising and Subscriptions: Costs related to advertising for new tenants and subscriptions to landlord associations are allowable.
Travel Expenses: Costs for traveling between rental properties in Newport can be claimed, including petrol and vehicle running costs.
How Do Allowable Expenses Affect Your Tax Bill?
Most landlords file their tax returns under the 'cash basis,' which means only income received, and expenses paid during the tax year are included. Keeping accurate records of all income and expenses is essential for claiming allowable expenses effectively. Utilizing the services of an experienced letting agent can streamline this process, ensuring accurate record-keeping.
What Can't You Claim?
Certain expenses are not considered allowable, including personal expenses, private phone calls unrelated to the rental business, and clothing bought for business purposes. Additionally, total mortgage payments cannot be claimed as allowable expenses.
Landlords' Wear and Tear Allowance
'Replacement of domestic items relief,' allows landlords to claim expenses for replacing domestic items. However, it's important to note that initial purchases, such as furnishing a property from scratch, are not eligible for tax relief.
Key Allowable Expenses to Remember
Whether you're a novice investor or an experienced landlord in Newport, certain expenses can make a significant difference to your tax return. Don't overlook expenses such as travel costs between properties, advertising expenses, and legal and accountancy fees related to buy-to-let investments.
Understanding allowable expenses is crucial for maximizing returns as a landlord. By leveraging these deductions effectively, you can reduce your tax liability while ensuring compliance with tax regulations.
However, tax rules can be complex, so it's advisable to consult with a professional tax advisor to explore your individual circumstances thoroughly.
Remember, proper record-keeping and documentation are key to successfully claiming allowable expenses and optimizing your tax position as a landlord.
What Next?
Freelancer Lets & Sales can help you with property management in Newport.
Call us on 01633 856344 or email enquiries@freelancerlets.com to find out how we can help you maximise returns on your rental property.
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*This is not tax advice and tax rules can be complex. We recommend that you speak with a professional tax advisor about your individual circumstances.
In the meantime we've answered some of your common questions about allowable expenses.
What are allowable expenses for landlords in the UK?
Allowable expenses are costs that are "wholly and exclusively" incurred for the purpose of renting out a property. These expenses reduce the taxable profit from your rental income, thereby lowering your overall tax bill.
Can I claim mortgage payments as an allowable expense?
No, you cannot claim full mortgage payments as an allowable expense. However, you can claim mortgage interest relief under specific rules, which allow you to offset part of your mortgage interest against your rental income.
Are property improvements tax-deductible?
No, property improvements, such as adding a conservatory or upgrading a kitchen, are considered capital expenditures and are not allowable expenses. Only maintenance and repair costs necessary to keep the property in good condition are deductible.
Can I claim travel expenses for visiting my rental property?
Yes, travel expenses incurred solely for managing your rental property, such as property inspections or meeting tenants, can be claimed. This includes petrol, public transport fares, and vehicle running costs. Be sure to keep detailed records of your travel expenses.
What records do I need to keep to claim allowable expenses?
You should keep receipts, invoices, and detailed records of all rental income and expenses. This documentation will support your claims during your self-assessment tax return and help avoid issues with HMRC.
Can I claim legal fees related to my rental property?
Yes, legal fees incurred for activities like evicting a tenant, preparing rental agreements, or professional advice related to the property are allowable expenses. Legal costs for property acquisition are considered capital expenses and are not deductible.