August 2017: Rental Property Expenses
There have been a number of changes in the last year regarding tax-allowable expenses for landlords. This article aims to give a summary of the amounts that remain allowable and to highlight key changes that have been made.
Many of the general expenses remain allowable, including:
- Letting fees and property management fees
- Utilities and rates (water, electricity, gas, council tax)
- Service charges and ground rents
- Repairs and maintenance (where there is no element of enhancement) including cleaning and gardening
- Other services (TV licence, TV package, internet services)
There have been changes to the amount of mortgage interest that is allowable. Relief will still be available, but will be restricted for higher rate tax payers. This restriction is being phased in over the next four tax years and will be fully implemented by 2020/21.
Allowable expenditure will be proportionately reduced where there is an element of personal use of the property or services.
Where expenditure is deemed to be a capital enhancement to the property, rather than a repair, the costs will not be allowable against income. The cost can instead be set against the eventual sale proceeds on disposal of the property for Capital Gains Tax purposes.
Replacement of Domestic Items Relief
Where an item is not allowable revenue expenditure, but is also not considered to be a capital enhancement, it may qualify for Replacement of Domestic Items Relief (which replaced the “wear and tear allowance” from 6 April 2016).
Through this relief, you may be able to claim a deduction for the cost of replacing domestic items such as:
- Movable furniture (beds, free-standing wardrobes)
- Furnishings (curtains, linens, carpets, floor coverings)
- Household appliances ( televisions, fridges, freezers)
- Kitchenware (crockery, cutlery)
There are detailed rules for the amount of deduction that is allowable and how it should be calculated.
Properties which qualify as a furnished holiday let do not qualify for Replacement of Domestic Items Relief, being eligible for capital allowances instead.
For those eligible for the “rent a room” scheme, a tax-free allowance is available instead of any relief for specific expenditure items and we can advise on the most beneficial claims.