Understanding landlord tax deductions for property expenses

Understanding and navigating landlord tax deductions can be quite a complex task, especially if you’re new to property investment. As you aim to make a profit, tax breaks for landlords can provide welcome relief, so it’s vital to maximise them where possible. 

In this guide, we’ll explain the key expenses landlords can claim and highlight the importance of documenting all property-related expenses with clear receipts and invoices. We’ll also showcase the advantages of seeking professional advice to help you optimise your tax savings.

What are the allowable landlord tax deductions?

Claiming landlord tax deductions is beneficial. Landlords can save money by legally reducing their overall tax bill. For example, if you earn £25,000 in rent annually and spend £8,000 on repairs, £2,000 on insurance, and £2,000 on agent fees, your allowable expenses total £12,000. Your taxable profit drops to £13,000, significantly reducing your tax bill.

Therefore, it’s vital to understand the types of deductions so landlords can include as much as possible in their self-assessment. Here’s a list of some examples of landlord tax deductions.

• Landlord insurance
• General maintenance and repairs to the property
• Utility bills, including water, gas and electricity
• Internet bills
• Letting agent and management fees
• Accountant’s fees
• Ground rents and service charges
• Council tax
• Direct costs, such as phone calls, stationery and finding new tenants
• Vehicle running costs for when the landlord uses the car for the rental business

Some of the types above will only count as tax breaks for landlords if they are written down as the landlord’s responsibility in the tenancy agreement. For example, utility bills can count as an allowable expense, but the tenancy agreement must state they are the landlord’s responsibility. In other words, the water bill cannot be a landlord tax deduction if the tenant pays for it.

Expenses such as capital expenditure, interest payments on mortgages and personal expenses not relating to the property cannot be used as tax breaks for landlords.

How do I claim landlord tax deductions?

Firstly, landlords must carefully document all expenses throughout the entire year. This can include keeping receipts, invoices and bills. You might need to use it as evidence when making the claim. This also allows the tax break for landlords to be compliant with the tax laws.

We also recommend keeping the documentation for six years after you submit your tax return. HMRC has the right to investigate your landlord’s finances during this time, so you might need to call upon the evidence.

Self assessment forms for landlords

Landlords must declare their income to HMRC through a self assessment form. This must be completed for each tax year. The tax year runs from April 6 to April 5. The self assessment form includes a section for landlord tax deductions. This section must be completed in full and in as much detail as possible.

Dealing with landlord tax deductions can be complex. It’s beneficial to maximise tax breaks for landlords, so it might be worth seeking professional advice. Some services, such as Tax Scouts, can help you do that correctly. An accountant specialising in the subject can stay on top of complex and ever-changing tax rules.

Actionable steps to optimise landlord tax deductions

To make the most of tax breaks for landlords, follow these top tips to stay organised and help build as much profit as possible.

1. Stay on top of your expenses throughout the year and track them as the payment occurs. It might be worth creating a spreadsheet or a written document to help you track all payments. When filling in the self-assessment the following April, it might be hard to remember what you paid for in May.
2. Buy a specialist folder to keep your receipts safe. Split them into categories if you find that easier!
3. Closely monitor your tenancy agreement to make sure you are responsible for the specific payments.
4. Seek professional advice when it comes to completing your self-assessment.
5. File your tax return early. This then gives you maximum time to ensure you have the correct money for the payment deadlines in July and January.
6. Keep up to date with the changes to the tax laws so you can maximise your landlord tax break every year.

We have the expertise to find the best landlord insurance deals that are suitable for your needs as a landlord. Contact us today at 01788 818 670 for a quote, and don’t forget to visit our resource centre for more information on how to be a successful landlord.