How To Maximise Your Tax Expenses For A Rental Property

Tax is a nuisance for most of us, but for landlords it can be one huge hurdle to face. Rental payments are, unfortunately for landlords, classed as a second stream of income and therefore are subjected to tax. The higher the rent charged or if a landlord has more than one regular rental income stream, the more significant the tax charged. As a result, landlords can end up with very sizeable tax bills.



However, HM Revenue and Customs treat residential lettings as a 'property business' - even if you have just one house in your portfolio. This means that you are able to offset a number of expenses against your income tax bill. Our guide explains how you maximise your tax expenses for your rental property.



Tax allowances you can claimWhatever the size of your property business and however many properties you own, the expenses you're entitled to do not change. When the time comes to filing the self assessment tax return, you must put the gross total rental income (total rental income, no matter if it's profit or not) and then list your deductable tax expenses. The end result is paying tax from the profits after all expenses have been accounted for, so what expenses can a landlord claim for?



The Landlords Guide to the Top 5 Expenses You Can Offset Against Tax No1. The cost of insurance and your mortgage payments If you have taken out a commercial mortgage, or other form of commercial property finance to purchase the property, then interest on this loan can be offset against the rent you receive. You are unable to claim back any payments that go towards reducing the capital debt. You can also claim for insurance expenses, for example, your buildings and content insurance.



2. Power and Water CostsIf for any reason you pay water or power costs, or any of the other utility bills then can offset these as expenses. Normally these will be paid for by the people leasing the property though. You are likely to incur these costs between lets.



3. The money you pay out for professional servicesThere are various professional expenses that can be offset against rental income too. Accountancy fees (ironically) and legal fees all fall within this bracket. To find out exactly what professional fees you pay, check with HMRC online.



4. The cost of keeping the property in good order.Perhaps one of the biggest expenses a landlord can come across is the maintenance and repair of their rented property. Unfortunately it's the risk you take when offering your property for someone else to live in. However, the silver lining is that any necessary repairs to a property that need to be done in accordance with Health and Safety regulations, can be reclaimed. This does not include home improvements though, so if you want to add a conservatory, you will have to find the funding yourself. You must be strict when drawing the line between so-called improvements and necessary repairs.



5. Letting Agent's CostsMany landlords use a management company to manage their property and tenants. Their costs are regarded by HMRC as an allowable expense.



In addition to these main tax expenses, there are various other allowances that you can claim. These include marketing for a tenants, gardening or cleaning, ground rent, and service charges (for example on flats).



Filing your tax return: So now it's the time to complete that dreaded tax return but hopefully taking into accounts the above points it shouldn't be so heartbreaking! You will need to include total rental income and allowable expenditure.





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