If you’re a landlord, understanding all relevant tax regulations and the allowable expenses available to you is crucial for optimising your investments. While many of your expenses are tax-deductible, not all of them are. This article is focused on the expenses you can’t claim, hoping it shines a light on what you can claim, so you don’t waste time on futile applications.
1. Personal expenses
Allowable expenses are strictly purchases made for the day-to-day running of your business. As such, personal expenditure is strictly disallowed and does not qualify for tax relief – but you no doubt already knew that.
However, some personal purchases may still qualify if they are partly used for business purposes. For instance, if you use part of your home office to manage your rental property, only the portion directly related to the rental activities can be claimed. The same is true for phone bills.
2. Business entertaining
If you ever host a business partner, such as a property manager or real estate agent, to promote your business, you should know that those costs are not tax deductible. These include purchases like food and drink, accommodation, and sporting events.
3. Improvement costs
If you purchase a property and add improvements to it, such as a burglar alarm, conservatory or extension, you cannot deduct these – while you can deduct repairs. This is because expenditure that improves the value of your property, rather than maintains the property in its current condition, are capital expenses, and are subject to different rules. Instead, these costs can qualify for tax relief against any capital gains you may make on the disposal of the property.
Similarly, you cannot claim improvements to items within the property, including an upgraded version of a whitegood or piece of furniture. Direct replacements are acceptable, but anything that enhances the asset is a capital expense.
4. Restoration costs
If you purchase a property and need to restore it to make it rentable, these costs are not deductible as they are also capital expenses. If you incur costs while the property is rentable, they are deductible as they relate to the day-to-day running of the property and not its improvement.
5. Mortgage interest payments
In the past, landlords could deduct their interest payments on buy-to-let mortgages or other loans. This is still the case, but they cannot deduct the entire cost anymore. Instead, you can claim a tax credit worth 20% of the annual interest payments – if you own the property in your own name. If you own your property through a limited company, you are able to claim the full cost of mortgage interest payments.
Need help with your taxes?
Need help with your taxes? Navigating tax regulations can be complex, especially for landlords. Professional tax advisors offer personalised guidance to maximise deductions, ensure compliance, and optimise your financial strategy.
At Pearson May, we stay updated on the latest tax laws, helping you avoid costly mistakes and take full advantage of available benefits, such as allowable expenses. Whether it’s filing returns or planning future investments, we can make a significant difference.
Contact us today for expert assistance.