If you rent out properties, understanding tax relief for landlords can make a big difference to your finances. The cost-of-living crisis has seen many many landlords struggle to turn a good profit in recent years, and interest rates are still steep as we enter 2024.
Thankfully, good tax planning can help you retain as much of your rental income as possible — but what tax relief can you claim as a landlord? Let’s dive in.
Navigating tax relief for landlords
One of the main ways you can cut down your tax bill as a landlord is by claiming allowable expenses. You can deduct various business expenses from your taxable rental profit — so long as they’re incurred wholly and exclusively for the purposes of renting out your property.
This covers a wide range of costs, including:
- general maintenance and repairs on the property
- utility bills (if you pay them yourself)
- landlord’s insurance
- letting agent fees
- legal or accountancy fees
You may still be able to deduct an expense incurred for both business and personal purposes, such as the costs of running a vehicle. However, you should take care to only claim for the proportion used in your property business.
Not everything will qualify as an allowable expense, and we can clear things up for you if you’re ever unsure.
Changes to tax reliefs for residential property
Back in the day, you could deduct all or part of your mortgage interest payments as an allowable expense. But, as of April 2020, individual landlords only qualify for a credit worth 20% of their annual interest payments.
You can still claim mortgage interest repayments from your taxable profits if you rent through a limited company. As a result, incorporation is an option worth considering for higher and additional rate taxpayers — although this usually comes with other costs.
As a landlord, you can get up to £1,000 a year of tax-free property income by claiming property allowance.
You may also be able to claim a deduction for the cost of replacing certain domestic items such as furniture, furnishings, appliances and kitchenware.
Replacement of domestic items relief can include everything from pots and pans to beds and bookcases, and applies whether you rent out a furnished or unfurnished property.
You’ll need to meet a set of criteria to qualify. For example, your tenants should no longer have access to the old item — and you won’t be able to claim it if your property qualifies as a furnished holiday let.
If an expense will be used in your rental business over a longer period of time, it’s classed as capital expenditure.
Examples of capital expenses include adding something to the property, such as an extension or new security system, or altering or improving an existing feature, such as upgrading the kitchen or bathroom.
You cannot claim capital expenditure against your taxable income — but you should still keep detailed records. If you sell your property later down the line, you may be able to offset these expenses against capital gains tax (CGT).
Making sure you pay the right amount of tax
To make the most of tax relief for landlords, you’ll need to keep detailed, up-to-date records of your business transactions — so make sure you hold onto all your receipts. Good bookkeeping habits can save you a lot of money in the long run.
However, minimising your tax bill isn’t always straightforward. The tax breaks available to you will vary depending on the nature of your rental business and the complexity of your finances.
If you want to draw up an air-tight tax strategy that works for your rental business, you should hire a specialist. As accountants for landlords, we can help you make the most of your rental income, no matter the size of your property portfolio.
Why worry about overpaying your tax bill? Get in touch with us today to find out how we can help you claim tax relief for landlords.