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Rental Property and Deductible Expenses

A deductible expense is a cost incurred which can be claimed when calculating taxable profits from a business or income source.  Individuals with rental properties will incur expenses which may or may not be deductible when calculating the profit which is liable to income tax.

Generally, expenses that are incurred wholly and exclusively for the purpose of rental are claimable.  Examples may include estate agent’s fees, buildings insurance or basic repairs and maintenance.

In addition, if you let a property on a furnished basis, you will have the claiming of claiming wear and tear allowance.  Wear and Tear allowance is a claimable expense which is meant to reflect the costs relating to wear and tear on the furniture provided.  The allowance is at a rate of 10% of net rents.  If a landlord chooses to claim this deduction, they will not then be able to claim for the replacement cost of furniture at a later date.

In addition to the above, there may be other costs which are not deductible.  Mortgage interest costs can be claimed, but capital payments are not deductible.

In addition, expenditure incurred on the property for capital improvements are not deductible against income (only when you dispose of the property).  Capital improvements are those costs which result in additional enduring benefit or value.  Examples include building an extension or loft conversion.  Costs incurred for the replacement (rather than improvement) continue to be allowed.  This for example may be the replacement of a broken shower with a new shower (of similar quality) or the replacement of a boiler of similar standard.

Landlords will often need to take advice on such issues, as there is a fine line between which items will qualify.

For more information about renting out a property and the associated tax implications, please contact the tax department on 020 8429 9245.