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Which allowable expenses do buy-to-let landlords fail to claim?

Article by GoSimpleTax

There are about 2.66m private landlords in the UK and some of them could well be your clients. Although renting out property can offer excellent returns, it involves a wide variety of expenses, big and small. 

Thankfully, as you know, many costs can be claimed as “allowable expenses”, which buy-to-let landlords can deduct from their profits, to help minimise their Income Tax bill. But many buy-to-let landlords fail to claim some allowable expenses, which can leave them overpaying hundreds if not thousands of pounds each year in Income Tax.

This guide provides a basic overview of allowable expenses that your landlord clients can claim, as well as ones that they may not be claiming. 

Here’s what we’ll cover

• Why buy-to-let landlords often fail to claim some allowable expenses.
• Allowable expenses that HMRC allows landlords to claim.
• Allowable expenses that buy-to-let landlords often fail to claim.
• How property maintenance, repairs and improvements are considered.
• Things that buy-to-let landlords cannot claim as an allowable expense.

Why do buy-to-let landlords fail to claim allowable expenses?

A big reason why some buy-to-let landlords’ allowable expense claim is lower than it could be is poor expense management. Obviously, this commonly includes losing receipts for purchases for which they could otherwise claim. Other buy-to-let landlords deem a cost so insignificant that they don’t think it worth the time or effort to record. But such costs can mount up over the year, so, where allowable, they should be encouraged to claim them all.

Lack of knowledge is the other key reason why some buy-to-let landlords fail to claim their full allowable expenses. They simply don’t know that certain expenses are allowable for tax purposes. In some instances, they might suspect that they can claim, but don’t, because they fear breaking the rules and getting into trouble with HMRC.  

In addition to your advice, some simple desk-based research can enable them to quickly find out which outgoings they can claim as an allowable expense. Some online sources of information are less accessible and reliable than others, which is why advice from a trusted tax professional can make a big difference.

What are “allowable expenses”? 

For an expense to be allowable for tax purposes, as you know, it must be generated “wholly and exclusively” for the purpose of trade (in this case, renting out property). So, for example, a landlord cannot claim as an allowable expense a vacuum cleaner that they also use for cleaning their own home. 

If they use something for business and personal reasons (eg their mobile phone), they can only claim allowable expenses for the proportion that results from renting out their property.

Some allowable expenses are more obvious than others. For example, a buy-to-let landlord may well know that they can claim for Council Tax, water rates, gas and electricity, if they pay these for the rented property (otherwise the tenant pays them, obviously). 

They can also claim as an allowable expense ground rents and service charges, as well letting agent fees and management fees. Landlords’ insurance policies for buildings, contents and public liability can also be claimed as an allowable expense.

Need to know! The introduction of “Section 24” in 2017 removed a landlord’s previous right to deduct mortgage interest and other finance costs (eg mortgage arrangement fees) from their rental income before calculating their tax liability. Instead, landlords now get a tax credit of 20%. 

Allowable expenses: what might landlords not be claiming for?

To maintain their property, a landlord may do some gardening, DIY or end-of-tenancy cleaning to save money, rather than paying someone else to do it. However, they can claim such services as an allowable expense, which could save them the trouble.

Landlords can also claim for some legal fees (eg for advice about pursuing a tenant for unpaid rent) and rather than doing their own bookkeeping or tax returns, they could hire an accountant and claim their fees as an allowable expense.  

A landlord may be using their own landline or mobile phone for making calls that result from renting out their property. This proportion of their total bill can obviously be claimed as an allowable expense, and the same applies to vehicle mileage costs (eg if they need to travel to their rental property or make any other related journeys). 

Some landlords may not realise that they can claim for advertising their property to attract new tenants, or that even relatively small costs, for example, stationery, can be claimed as an allowable expense. They may even be able to claim for costs incurred to dispose of old items of furniture or electrical appliances.

What about property maintenance, repairs and improvements?

Costs landlords pay out to maintain and repair a rental property to ensure that it retains its condition can be claimed as an allowable expense. Common examples include redecorating a property between tenants, fixing a broken window or mending a garden fence. If a landlord claims on their insurance to cover a repair, obviously, they cannot also claim it as an allowable expense. The same is true if their tenant pays for damage out of their deposit.

Replacing baths, washbasins and toilets is allowable, because they’re classed as building repairs, but only if the landlord replaces like for like (ie the quality isn’t superior). 

Landlords cannot claim “capital improvements” as an allowable expense. Making capital improvements means upgrading, adapting or enhancing a property so that its value increases, which often involves making a structural change, for example, building an extension or converting a loft. 

Need to know! Capital expenses aren’t allowable, so landlords can’t claim for them against their rental income, but they may be able to set them against Capital Gains Tax if they sell the property later on.

What can’t buy-to-let landlords claim for?

As explained on government website GOV.uk: “[Landlords] cannot claim the costs for replacing furnishings or equipment in a [rental] property. These are not allowable as costs of maintenance and repairs, but from 6 April 2016 they may qualify for Replacement Domestic Items relief.”

So, if the property is furnished or part-furnished, a landlord may be able to claim tax relief for replacing such things as sofas, beds, carpets, curtains, fridges, washing machines, sofas, crockery, cutlery, etc, as long as the quality is comparable – not superior. 

Buy-to-let landlords cannot claim installing a security alarm system as an allowable expense unless they’re replacing one of a similar standard that was already there. If they’re in any doubt about what they as a buy-to-let landlord can and cannot claim as an allowable expense, you can add much value to the relationship by providing them with sound advice. 

About GoSimpleTax

Income, expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you saving you ££’s on an accountant. Available on desktop or mobile application.

Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.

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Snapping up the perfect images – Business and family

Here INsider member Mark Alefounder from The Best Lil Photo shares top tips on taking great shots for your business and for the family gifts this Christmas (and any time of the year! Let’s face it those pictures that are cute now will be priceless in 15 years time. If you would like to write for our blog, this is a FREE service to all Insiders (Join here) or £55 per article. Discounts apply to multiple articles.

“Why your Home could be the best location for your Photo session!

Professional family photography

Family phone snaps will always have a place, but they will never compare to the quality images and portraits that are produced by a professional family photographer. You might think the latest phone gives you access to quality photography but with the latest camera technology, the ability to manipulate light and editing expertise, a professional will produce images of your family you simply couldn’t get yourself.

What about a Studio?

At this time of year an outdoor photography session can be affected by our unpredictable weather so you may be considering a studio photoshoot. The first problem with a studio is location. You need to get to it rather than the other way round. How easy is it to get to? How far away is it? You might have seen photographs, but you never really know what it’s like until you turn up. The biggest problem however is that many people find the whole studio environment a little intimidating even clinical with so much equipment on show. If you don’t feel comfortable about visiting a studio, you’re not going to feel comfortable once you arrive.

What if I don’t feel comfortable in a studio?

There is an alternative. Why not use your own home for a family photo session?

Your home could be the perfect backdrop helping to form part of your family story. Imagine looking back at the photos in the future. More than looking at a family moment captured in time it becomes memories of a family home, a family life, a family room and even an assessment of old family furniture.

Is my house suitable for an at home Photo session?

I know what you’re thinking. Everybody does! “But my house is a mess”!

Yes, I know it can be stressful considering inviting a professional family photographer into your home for a photoshoot. You are probably thinking your house is too small or there isn’t enough room as well. You’ll be pleased to know that these are all concerns that have been raised many times before. We have dealt with, managed, and removed these concerns every time.

What about my children?

In my last Blog I talked about children’s behaviour. In their own home playing with their own toys in their own environment most children are untroubled by the appearance of a photographer. Another potential advantage of keeping things `in house`.

Natural Photographs

We don’t want to take your family photos in a show home we want to show the reality of your life. Natural shots, candid shots capturing real moments in your real lives. There’s no harm in a little mess, it’s a home and you have children or a baby.

I’ve been there. Children make a mess. Constantly. If you tidy up when your toddler is still awake you’ve probably wasted your time. If you have a newborn baby they won’t be untidy, but you will create your own clutter. It’s hard looking after a baby. Mum and Dad is a full-time job without any other jobs you might have. If you’ve got no clutter and a newborn baby, how are you doing it!? Tell everybody or write a book quick!

What I will concentrate on as a photographer

Even though it would really help if you did what you can to prepare your house prior to your shoot, I will be paying more attention to lighting as well as the background of your photos anyway. If needs, be I would work with you to shift things around to help get the best possible photos. An at home photo session is about collaboration and I love that part of the photo shoot.

As a photographer its my aim to show you and your surroundings in the best possible light. There will always be places that you won’t want photographed and that’s fine. I will be looking to use rooms that have the best light, but I will also bring along lights that will provide that for me if natural light isn’t available.

What’s the biggest benefit of an at home photo session?

I can bring professional studio lighting, backgrounds, and props to your home. What that means for you is all the benefits of a studio family photo or Newborn baby photo session but in your own home. You don’t have to leave your house. A home photo session with all the professional lighting and camera equipment you need.

Why a Newborn Baby at home photo session?

A home photo session for a Newborn baby is a great option. Baby will always feel most settled in their own home. No need to upset them by waking them up, getting them dressed, putting them in the car, driving to the studio, taking them out of the car, putting them in another pram or chair, taking layers of clothes off, changing them again and so on.

A home photo session means Baby is at home, content, happy, relaxed and doing what makes it happiest until I arrive. I can even set up without disturbing them. Often with a newborn baby shoot at home they might not even wake up.

At home we can make use of favourite blankets, toys and muzzies. If you don’t have those things or want more, I bring round a large plush luxurious round bean bag, blankets, a couple of new knitted hats and a few props. If you’ve got a feeding chair or are particularly proud of your nursery, we can include photographs of baby with those too. These are Photos you simply couldn’t get anywhere else.

Will your next photo session be at home?

Whether its family photography with mum dad and children. Newborn babies or grandparents etc the photos can be taken at home.

I can provide you with photographs that will reflect you and your family which you can transform into beautiful pieces of art you can display in your home.”

Mark shares lots of advice on capturing the perfect image to tell your story over on the Insiders and on his site here so if you are struggling for Christmas gifts a photo shoot could be perfect.