Landlords Tax On Rental Income

Landlords Tax On Rental Income

Do I pay tax on my buy to let property and tax on rental income?  This is a question that is asked many times by landlords.

The short answer is yes all UK landlords who own buy-to-let properties must pay tax on any profit after deducting allowances and expenses.

What Expenses And Allowances Can Landlords Claim?

When you become a landlord your buy to let property will need to be maintained and this will have to be paid for by you the landlord.  These will be the expenses to run and maintain the rented property and you can claim for this as maintenance and repairs.  The repairs must be solely for this property and must be proportioned accordingly in relation to what your expenditure is for each item.

There are several ways in which landlords rent their buy-to-let properties.  One way is when they include all bills i.e. water rates, council tax, service charge, gas, electricity, garden maintenance estate agency fees, landlords insurance etc. 

Landlords can also claim all the administration, i.e. accountants, solicitors fees, all phone calls, and letters or documents that you may have to draft or have drafted by an external professional.

These are all allowable expenses and can be claimed for at the end of the year as part of your expenses.

Buy To Let Relief On Mortgage Payments

In 2019-20 the government has changed the way in which you can now claim interest on your mortgage payments, this will mean that landlords will pay a higher rate of tax on their buy-to-let property investment. 

It is always best to seek the advice of your accountant who will be able to ascertain what tax liability you will have to incur at the end of the year.  There are many aspects that have to be taken into consideration.  Make sure that you draft a document to show what expenses you have paid for so that this can be deducted and thus reduce your tax liability.

What Can A Landlord Deduct As An Expense?

Landlords who purchase a property that either needs to be extended, or renovating will not be able to deduct this from their overall tax liability.

Solely For The Property

If as a landlord you are renting your house any expenditure you make must be for the property exclusively.  What this means is that lets say you live within the house, or you are only renting a certain space, then you will only be allowed to deduct that space, this could mean that heating certain areas and possibly lighting certain parts as other areas may be occupied privately.

Landlords Wear And Tear

The new wear and tear allowance has now changed this in turn means that a landlord can now only claim tax relief on domestic items that you are replacing.  If the landlord decides to purchase new furniture or items within the property then this is not tax deductible.

So what Is Classed As Domestic Items?

There are lists published by the government that specifically lists all items.  These include replacement beds, washing machines, tumble driers, sofas, curtains, blinds, carpets, kitchen equipment, cutlery, etc.  

There are also guidelines in relation to purchasing price, so if you have purchased an item for a lot more because it’s better quality than already at the home, then you will only be able to claim a like for like ie the original price of the already installed item. The government also allows you to charge for any disposal of the goods that you may have to instruct a third party company for.

Final Deductions And Tax Relief – What To Do

A landlord will be able to deduct all the cost of replacing domestic items, as long as they follow the government guidelines, so for any items that need to be replaced make sure that you keep all records and invoices, as your accountant will need this when working out your net profit for the year. 

To learn more about this you can visit the government page on income tax for rental income

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