A Landlord’s Allowable Expenses in 2022
Landlord’s often find it frustrating to understand which costs are allowable expenses and which are not. While buy-to-let property owners want to do everything they can to capitalise on their rental income, understanding how buy-to-let tax relief works and how it has changed over the years is essential if they want to maximise profitability without breaching tax laws.
The last thing you want as a landlord is to claim for disallowed expenses or miss out on allowable expenses because you are unsure if you can deduct them. While it is straightforward to ensure you are covered against common risks associated with a buy-to-let property with landlord insurance, it can often not be clear to know what property repairs you can claim against your buy-to-let income and what you cannot.
Landlord allowable expenses 2022
For landlord’s to be able to claim an expense against your buy-to-let income, the payment must be used ‘wholly and exclusively for the management of the property. For example, you can buy a laptop to help manage your rental properties, but the computer must not be used for personal reasons.
Using the computer, laptop, or other office equipment you buy for personal use will not qualify as an allowable expense against your buy-to-let income.
The list of allowable expenses for landlords falls into five categories. These main five categories are:
- General business expenses: For example, marketing and letting agents’ fees, office expenses, phone and broadband, travel costs such as petrol.
- Professional fees: For example, your accountant fees, building insurance, content and rent protection cover, costs of surveyors, and solicitor fees.
- Service fees: For example, building services, cleaning, decorating, and gardening costs.
- Repairs: Repairs or replacements that do not count as an improvement to the property. If you improve the property, the costs are not allowable, for example, adding an extension or conservatory to the property.
- Property charges: For example, council tax and utility bills.
Non-allowable expenses for landlords
While there are many costs and expenses incurred when you are operating a buy-to-let property or a portfolio of rental properties, there are associated costs that are not allowable expenses under tax UK laws. These include:
- Interest payments: Recent changes to UK tax laws have ended buy-to-let tax relief on the interest of finances for buying a buy-to-let property. This has now been replaced with a tax credit under section 24 tax changes.
- Property improvements: While it is OK to perform repairs to damage through normal wear and tear and replacement of worn out, perished or broken elements and claim the costs against your rental income, such as replacement guttering, roof tiles, central heating boilers etc., if you choose to have improvement works done to increase the value of the property – this won’t be an allowable expense. This includes building extensions, adding a conservatory, or buying new furniture and appliances for a furnished rental property.
- Property restoration work: Many landlords will buy run-down properties to restore and refurbish them to bring them up to code and let them out. However, if you buy a property that isn’t in a rentable condition, any costs associated with its refurbishment are not allowable expenses against your buy-to-let income.
It can be a bit of a grey area when you are a landlord that lets out part or fully furnished properties about what you can claim back against your buy-to-let income. Should an appliance such as a cooker break down, you can replace it with a like-for-like model and claim the expense.
But if you replace it with a far better quality appliance, this would be counted as an improvement, and you will only be able to claim back part of the cost up to the value of a like-for-like replacement as an allowable expense. So if you install a cooker worth £800, but the original price was £600, you would only be able to deduct the original cost of £600.
Office and management-based allowable expenses for landlords UK
Whether you are a buy-to-let landlord with a single house or a whole portfolio of rental properties, you will have office costs associated with managing your buy-to-let business.
Office costs you can claim against your buy-to-let rental income include expenses such as your phone, broadband bills, and office equipment. However, you need to be careful how you use your office equipment and ensure you only use it for your buy-to-let business to be allowed to claim it as an expense against your business.
For example, you can buy a desktop computer or laptop, a tablet and a mobile phone to use for your buy-to-let business and claim these expenses against your business income. However, suppose you choose to outsource the management of your property business to professionals. In that case, you can claim the fees you pay for professional services such as accountancy, bookkeeping, and property interior design.
You may hire specialist tradespeople to work on your property, such as plumbers, builders, decorators, joiners and kitchen fitters, gardeners etc. You can claim their fees as expenses against your buy-to-let income.
Property marketing costs
Many landlords manage the marketing of their rental properties by themselves. However, you can outsource these tasks to professionals to handle them and claim the cost associated with marketing your property.
These costs can include property photography fees, letting agent’s fees, creation of virtual property tours, video footage and other marketing materials used to promote your property to attract tenants.
Landlord insurance UK
You can claim back your landlord insurance costs as these are considered allowable expenses for buy-to-let property businesses. This means you can offset your buildings and contents insurance costs and still be reassured that you are fully protected against the most common risks that face buy-to-let landlords.
Landlord insurance protection is invaluable when you run a buy-to-let business. It offers protection against risks associated with renting out properties. What you include in your insurance policy will depend on your individual circumstances and the challenges you face as a landlord.
You can build your landlord insurance policy to include:
- Accidental damage: To cover expenses for accidental damage, such as a dropped heavy object shattering a floor tile, red wine spilt on a new carpet etc.
- Buildings insurance: To cover the costs of repairs and rebuilding work needed to restore your property after fire, flood or vandalism.
- Contents insurance: To protect items such as furniture and appliances in the event of flood, fire or theft.
- Landlord liability insurance: To cover compensation claim costs for tenant injuries that you are responsible for. For example, a trip on a loose paving slab, frayed carpet or broken piece of flooring on the property.
- Legal expenses for eviction: To cover the legal costs of evicting a tenant.
- Loss of rental income: To cover against lost rent following a disaster such as a fire or a flood where your tenants need to move out while you conduct repairs.
Landlords need to be clear about what they can claim back on expenses against their buy-to-let income because if they fall foul of UK tax laws, they could face a hefty fine from HMRC.
It can help to brush up on the latest legislation over buy-to-let tax relief and ensure that the costs you want to claim back are allowable. As ever, having Landlord Insurance protection will be invaluable no matter whether you are a first-time landlord letting out one property or you are growing your portfolio. Our team of experts is here to guide you through the complexities of business insurance and help you make informed decisions.
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