Top Allowable Expenses for Landlords: Maximise Your Rental Returns in 2024

Having grasped the concept and importance of an allowable expense, we can now delve into the specifics. Some of the top landlord allowable expenses include:

• Finance costs
• Property maintenance and repairs
• Insurance premiums
• Ground rents and service costs
• Council tax
• Management fees and legal fees
• Wages
• Travelling expenses
• Administrative expenses
• Only the interest element of any mortgage or mortgage arrangement fees
• Any other finance costs related to the property rented out

Each of these expenses, when handled correctly, can contribute to maximising your rental returns.

Finance costs

According to the Capital Gains Tax Bill, landlords in the UK are subject to CGT when they sell a rental property that has increased in capital value since its purchase. However, you can claim capital expenses or capital allowances incurred during the ownership of the property. These expenses can be deducted from the gain, reducing the amount of CGT owed.

This is important when considering finance costs as expenses that can be deducted from your tax bill. Finance costs typically include those associated with purchasing and maintaining your property. The interest on loans and mortgages is part of these finance costs, and although they are restricted, they can be claimed too and used to lower your capital gains liability.

For example, if you raise your mortgage loan on your buy-to-let property, the mortgage interest on the additional loan can be considered a revenue expense and claimed correspondingly, potentially reducing your capital gains tax liability.

Property maintenance and repairs

Another crucial category is property maintenance and repairs. These include general repairs, such as fixing leaking pipes, repairing electrical faults, and repairing appliances. Redecorating costs, including painting, re-plastering walls, and replacing flooring, are also considered maintenance expenses and can be deducted from your rental income.

However, it's important to remember that the value of like-for-like replacements cannot be superior when claimed as allowable expenses.

Insurance premiums

Insurance premiums also fall under the list of tax-deductible expenses for landlords. These include building and contents insurance, as well as landlord insurance, which offers liability protection and loss of rent coverage. By deducting these premiums, you can significantly lower the amount of tax you owe to the government.

Ground rent and council tax

If you bear the responsibility of paying ground rent or paying council tax for your buy-to-let properties, these can be claimed as tax-deductible expenses. If tenants cover these costs, you can still claim expenses for periods when the rental property is unoccupied. It's an area that is often overlooked but can significantly contribute to reducing your tax liability.

Management fees and legal fees

Management and legal fees are also included in the ambit of allowable expenses. These include:

• Fees for the renewal of a lease
• Shorthold tenancy fees
• Eviction procedure fees
• Rent collection fees
• Accountancy fees

However, it's worth noting that legal expenses for the initial letting of a property or for letting agreements that last more than a year are not allowable expenses.

Wages

An often overlooked aspect is that wages for property-related employees can also be claimed as allowable costs. For instance, you can deduct the wages of gardeners and cleaners from your rental income when calculating your taxable rental profit.

Travelling expenses

Travel expenses arising out of business purposes related to your rental property, such as inspections or tenant meetings, can be claimed. However, the rules around claiming travel expenses are quite specific.

For example, you cannot claim the cost of travelling from home to an office if the rental business is not run from home as that classifies as personal expenses, but you can claim travel from the office to the rental property.

Administrative expenses

Administrative expenses, encompassing personal costs such as postage, stationery, and phone calls, among others, can also be deducted.

Costs for advertising for new tenants, whether online or offline, can be deducted as well.

Service charges

In the UK, service charge costs that have been incurred by landlords in relation to their rental properties can be claimed too, provided that the expense is relevant or 'service charges direct costs' to the rental property in question.

Other expenses

Lastly, expenses incurred wholly for the property business can also be claimed. One example of a deductible expense for landlords is the licence fee for Houses of Multiple Occupation (HMO). This expense can be claimed as a part of the property costs on your tax return.

Let's now explore another crucial distinction - the difference between capital expenditure and revenue expense. While both are expenses for your rental property, they differ in their nature and how they are treated for tax purposes.

What is a capital expense?

Capital expenses typically involve the enhancement of the property through alteration or improvement, like enlarging a driveway. It also includes property improvements and initial refurbishments before letting out the property. However, these costs are not deductible from rental income.

What is revenue expense?

On the other hand, revenue expenses relate to the costs that are incurred from day-to-day rental operations. These include interest on loans, arrangement fees, and bank charges on rental property bank accounts. While finance costs are a form of revenue expense, for most residential properties, there is a restriction allowing only 20% of costs incurred to be claimed against tax liability.