Investing in a buy-to-let property in the UK is an enticing prospect, offering significant long-term gains. Understanding which expenses are deductible can greatly enhance your financial strategy and maximise your returns. However, it’s important to note that allowable deductions vary depending on whether the property is purchased in a limited company or as a sole trader. In this blog, we’ll walk you through the essential deductible expenses to help you make the most of your property investment. After all, every penny saved is a penny earned!
Maintenance Costs
Regular maintenance costs, such as repairing or replacing windows, kitchens, bathroom fixtures, roof slates, or boilers, are deductible if replaced like-for-like. However, upgrades or layout changes that increase property value are considered capital expenditure and cannot be claimed. Maintenance is deductible, but improvements are not. Furnishing a property for the first time is also considered capital expenditure and not deductible. Routine decorating every five years, or after a tenant leaves the property in poor condition, is also deductible.
Important Notes:
- You don’t need to submit invoices or receipts with your tax return but keep them in case of an HMRC audit.
- Repairs covered by insurance claims cannot be deducted.
Utilities
Generally, tenants pay for council tax, water rates, energy, and broadband on a standard buy-to-let. However, if these are included in the rent and paid by the landlord, most likely in short term lets and HMOs, they become eligible deductions.
Cost of Services
Deductible service costs include gardening, cleaning, disposal of damaged or abandoned furniture/appliances, and some storage costs.
Insurance
Insurance policies such as buildings insurance, contents insurance (if the property is furnished), public liability, landlord rent protection, and legal protection can be deducted.
Letting and Management Agency Fees
Fees paid to letting agents for marketing the property, vetting tenants, and facilitating tenancy agreements are deductible. Similarly, fees paid to property management agencies for rent collection, arrears management, and property maintenance oversight can be deducted.
If you manage the property yourself, you can deduct advertising costs, stationery for marketing, and travel costs related to the property. Additionally, a portion of your phone costs for property-related calls is deductible.
Legal Fees
Legal costs for leases less than a year, renewing a lease with less than 50 years, and eviction fees are deductible.
Accountant Fees
Fees paid to accountants for managing your books or completing tax returns are deductible.
Rents
If you are sub-letting the property, ground rents and service charges for leasehold properties are deductible.
Mortgage Interest
Since 2017, you can’t deduct mortgage interest payments directly if the property is purchased as a sole trader but are entitled to a 20% tax credit on mortgage interest. If you increase your mortgage loan for the letting business, you may treat interest on the additional loan as a revenue expense or get relief against income. If you purchase the property under a limited company, only the profits will be taxed and not the income, and tax relief on mortgage interest is available.
Please note, E.R.E Property Group are not financial advisers. The information in this blog is only for educational purposes. We recommend consulting a registered financial adviser for assistance with your tax returns.
Contact our investment consultants today to start your property investment journey: +44(0) 113 380 8930.
Source: Gov.UK
