Summary. Landlords can claim tax reductions on equipment used in property rental businesses, but many miss out on these landlord expenses. Capital allowances (CAs) apply to assets used in the business, but restrictions exist, especially for residential properties. Landlords can also claim for renewing domestic items for tenants and combine profits and losses from residential and commercial properties for tax purposes.
As a landlord you are entitled to claim a tax reduction on the cost of the equipment you use in property rental businesses. But do you know what landlord expenses can be claimed for rental property? Many of you are missing out on tax relief that you are within your rights to claim.
Landlord expenses: what am I entitled to?
It’s important to know exactly what landlord expenses you are entitled to. That way, you can ensure you’re filing everything in correctly. Tax legislation states that money spent on equipment that you use in a business is not approved for tax deductions. Instead, you are given instead capital allowances (CAs). So, What are capital allowances? Capital allowances are expenditure a business may claim against its taxable profit. You can claim on most assets you purchase to use in the business, including equipment. However, you need to know the limitations and restrictions associated with landlord expenses and property allowances. Such as if CAs create or increase a loss in a property rental business.
When can I claim CAs?
You can easily misinterpret HMRC guidelines for landlords of residential accommodation when it comes to tax relief for landlords. So let’s clarify; HMRC implies that you can only claim CAs when you furnish the property for holiday accommodation. But, what is actually being said is that you can’t claim CAs for equipment “for use in a dwelling house”. This means the cost of equipment that the tenants will use for use, not on the equipment you will use or require to manage your residential property letting business.
Here’s the thing, you can claim CAs for the equipment to use in a property if it has a life expectancy of more than 2 years. Additionally, as long as you are using it to help maintain your residential property, items such as power tools and computers. You must however, take note that you cannot claim on the whole amount as non-business use must be taken into consideration for your claim. Capital items that you purchase for your tenant are subject to a different rule.
There is a different system that allows normal tax deduction (not CAs) for the cost of renewing capital “domestic items” used by the tenant. These are items such as beds, wardrobes, cutlery, white goods and soft furnishings etc.
What about non-residential rental properties?
For non-residential property businesses the same rules do not apply on the purchase of capital items. You can claim CAs for the cost of all equipment you buy to use in the property. Additionally, all the equipment you buy to manage the property.
What about if I let both residential and commercial property?
In the situation of you letting both residential and commercial property it is treated as a single business. This means you will combine all your profits and losses from all of your properties for the final taxable amount. If your business sees an overall loss, you can use it to reduce taxable profits for the following year. However, there is no tax relief available until you turn a profit except where all or part of the loss relates to CA’s.
How can I limit landlord tax?
You can reduce your overall tax bill by claiming rental property loss relief against the tax you pay on your other employment income (subject to you having an alternative taxable income). You will need to claim this either the same year or the subsequent year to when the loss arises.
How can we help you?
If any of the above still remains unclear, or if you have any further questions about landlord expenses then head to our website today. Alternatively, call 01384 261300 to speak to a member of our helpful and friendly accountancy team.
If you have found this blog helpful, you may wish to read our previous blog on the Salary Sacrifice Scheme.
