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Expenses Allowable Against Rental Income

Thursday, January 18, 2024
JordanWyatt

If you have a rental property or portfolio of properties, it’s important to understand what is classed as an allowable expense against your rental income. This article will help you understand what can be claimed as an expense, ensuring you’re declaring the correct profit per property.  

This area is a bit of a minefield, trying to ascertain whether utilities, insurances, fees, services, purchases and other costs can be fully or partially claimed. It’s important to note that at Ellacott Morris, we have experts in rental income who can help you manage your income and expenses correctly and effectively, so if you have any questions at all, please do get in touch 

Let’s start with a vital rule… Expenses can only be deducted from your rental income if they are wholly and exclusively for the purposes of renting out the property. You can find guidance as to what HMRC class as ‘wholly and exclusively’ at www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-case-studies#expenses-incurred-wholly-and-exclusively-for-the-property-rental-business 

As an example, if you purchase a jet washer to clean your own patio and then also use it at your rental property, you cannot claim the cost of the jet washer against your rental income.  

You can however claim part expenses! So, should you purchase a tonne bag of decorative stones for the garden of your rental property, but only use half a tonne and keep the remainder to be used elsewhere, you can only claim for 50% of the cost of that purchase.  

Maintenance and repair works can be claimed against your rental income as these are essential for upkeep of your asset and the safety of your tenants.  

An important area to understand is what you’re permitted to claim for replacement goods. If your rental property has a sofa in it that cost £1000 and you choose to replace the sofa with an upgraded version that costs £2000, you can only claim £1000. You cannot claim more than the equivalent like for like value.  

Now, whilst you can claim for things such as letting agent’s fees, landlord insurance, legal fees, accountant’s fees and more, the rules have changed regarding what can be claimed against mortgage repayments. From April 2020, landlords are no longer able to deduct any mortgage expenses from their rental income. HMRC chose to implement an alternative system and now landlords receive a set tax-credit, based on 20% of their mortgage interest payments. 

On the whole, you can claim for anything that is required to run and maintain your property. More information regarding the latest rules and regulations is available at www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income#allow-expense or by getting in touch with our team of experts.  

Should you choose to sell your rental property, then there are lots of other factors to consider when it comes to capital gains tax. This is also an area we can help you with so don’t hesitate to get in touch for expert support and guidance.  


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