What can self-employed landlords claim as income tax expenses?

HMRC provides a checklist of deductible income tax costs for landowners. What exactly you can claim depends on whether you are renting out a private property, a furnished holiday property or a business property.

The residential property owner can claim the ongoing costs of running their properties, including:

• Terrible oblig­a­tions
• Business costs such as calls, travel, and running a home office
• Costs for admin­is­tration by experts such as accoun­tants, rental specialists, surveyors or appraisers
• The leasehold contract for the property
• Guarantee insurance cover, including for buildings, substance and rent
• Interest on loans and credit purchases
• Repairs and replace­ments to the property
• Services such as cleaning or planting
• Service bills and meal fee (while the accom­mo­dation is empty)

Some of these are clear, but some — partic­u­larly business expenses, intrigue and repairs — regularly pose a problem for new landowners. We will cover these in more detail.

Bad debts

Leaseback payments are probably the worst liability for a real estate company.

The oblig­ation does not turn out to be “terrible” because someone owes the money. The property owner must make a reasonable attempt to get the money back, for example by initi­ating legal proceedings or referring the case to a relevant authority. If the oblig­ation clearly cannot be paid — for example, if the tenant declares bankruptcy — the oblig­ation has failed and has become a business expense.

Business costs

HMRC distributes reasonable cost guide­lines for the self-employed. These include:

• Office, property and equipment
• Vehicle, van and travel costs
• Clothing costs
• Employee costs
• Exchange products
• Legit­imate and monetary expenses
• Presen­tation, enter­tainment and member­ships

A self-employed property owner can claim part of this — the costs of moving around in their own vehicle and teleworking — using the “increased costs”. Reclas­sified costs use a uniform rate for these costs to avoid compli­cated figures: they are by far the easiest way to claim costs.

As an owner, there are a few special things to keep in mind.

First, there are your moving costs. HMRC will not allow you to claim “usual and unsur­prising” travel between your home and work area. This means you cannot claim to drive back and forth between your home and your current properties. You can claim that you are heading out to view new properties, but only in case you end up buying the property.

Also personnel costs. You can pay friends, family members, and agents who have no claim to a portion of your property when they conduct business related to the management of the property. The level of payment should reflect the work done — if you pay your husband £50,000 to hold the books for a purchase, this will be treated as tax avoidance. You can also pay for prepa­ration as long as you strengthen existing skills. Purchasing a book or guide on real estate costs for owners is an allowable fee, but pursuing a get-rich scheme for real estate financiers is not.

You cannot use the separate costs if you manage your properties through or are associated with a limited company. For the limited time you spend working from home, there are equations you can use to split your bills between personal and business use.

interest

Previ­ously, property owners had the option to apply for a tax break on intrigue payments to cover business expenses, such as purchasing land, property, materials or repairs.

This cost reduction has now been abolished.

You currently receive a 20 percent tax credit on these interest payments.

You can only claim the award — not the actual amount of money — and prove that the money earned was spent on purchasing space, property or hardware for the real estate business or on subsi­dizing repairs or improve­ments.

Repairs and replacements

An “improvement” is the repair or renewal of part of the structure of the building, e.g. B. a pump for the boiler, a tile for the ceiling or an equiv­alent kitchen renovation.

An “improvement” is a signif­icant update that includes appre­ci­ation: an extension, a room change or the replacement of a fitted chipboard and Formica kitchen with an oak and stone kitchen. You cannot claim improve­ments as costs for income tax purposes.

You can apply for the “homegrown replacement” relief for things like:

• movable furniture; for example, beds and cantilevered wardrobes
• decora­tions; for example curtains, clothing, blankets and floor coverings
• family unit machines; for example televi­sions, refrig­er­ators and cool boxes
• Dishes; for example ceramics and cutlery

Compen­sation for replacement of homegrown items includes any sale or partial trade of the old item, as well as any incidental costs associated with its removal or trans­portation.

To take advantage of this relief, you most likely purchased the thing for the property and removed the old thing. You cannot claim the under­lying costs of furnishing a private property for rental.

You also cannot claim the entire cost of updating the item. If you replace a £1,000 sofa with a £1,200 sofa bed, you’re paying appre­ci­ation: you can claim the first £1,000 back as you’re replacing like for like, but the remaining £200 is an improvement you can’t claim.

If you are renting out a fully furnished property, you can claim the replacement household items assis­tance, which will replace the wear and tear allowance from 2016. Under this plan, the under­lying costs of purchasing home-grown items for a home are anything but deductible expenses, so no help is available for these expenses. Help is only available for the substi­tution matter, including:

• movable furniture; for example, beds and cantilevered wardrobes
• decora­tions; for example curtains, clothing, blankets and floor coverings
• family unit machines; for example televi­sions, refrig­er­ators and cool boxes
• Dishes; for example ceramics and cutlery

You cannot claim the costs of purchasing a property, renting it out or making exten­sions.

These costs are important to your capital gains fee in deter­mining when you want to sell the property — you had to spend this money to achieve what you did in the deal, so it will be deducted from your benefit before the capital gains fee applies .

You can’t claim “usual and unsur­prising” travel expenses — such as trips between your home and office or between properties you currently rent.

If you rent out a property that is not fully equipped, you cannot claim wear and tear.