Thinking about becoming a landlord? It can still be a good source of income, though there are several things to keep in mind. The first £1,000 of your income from property rental is tax-free, this is your ‘property allowance’. You should contact HMRC if your income from rental is between £1,000 and £2,500 per annum and must report it on a Self Assessment tax return if it’s between £2,500 to £9,999 after allowable expenses or £10,000 or more before expenses.

What counts as allowable expenses?

This very much depends on what sort of property it is. In this blog, we’ll focus on residential lettings. Allowable expenses are things you need to spend money on in the day-to-day running of the property, like:

  • Fees you have to pay, such as letting agent’s fee, accountant or legal fees.
  • Essential maintenance and repairs to the property, but not home improvements.
  • Insurance, both for the building and contents.
  • Interest loans for the property.
  • Any utility bills you may have included in rent, such as gas, water and electricity
  • Rent, ground rent, service charges for leasehold properties
  • Council Tax
  • Additional services you pay for, such as gardening, window cleaning etc.
  • Other direct costs you incur whilst renting the property, for example advertising or stationary.

Capital expenditure such as buying a property or renovating it beyond repairs for wear and tear does not count as allowable expenses, so do bear this in mind before completing the purchase. Capital expenditure means you add something to the property that wasn’t there before or you alter, improve or upgrade something that was existing. If you are purchasing a property not fit for letting and then carry out the works which bring it up to that standard, the cost of this is not an allowable expense.

Replacement of domestic items

For residential lets, you may be able to claim a deduction for the cost of replacing domestic items. You can only do this if the original item was removed from the property and the replacement is bought for the sole use of the tenant.

You can only claim for a modern equivalent of the item/the same item or item of the same standard, not for an upgrade. If you are improving whilst replacing, then you can only claim part of the cost – equivalent to what the replacement of the same spec/quality would have been.

You can claim for deduction of cost associated with buying the replacement – such as delivery, or disposing of the item you are replacing which is often the case with fridges, freezers or bulky furniture.

Expenses you can claim for replacement of domestic items – from 6 April 2016

  • furniture such as beds, sofas, free-standing wardrobes
  • furnishings for example curtains, carpets, floor coverings
  • appliances such as washing machines, televisions, fridges
  • kitchenware for example crockery, cutlery

Here at Ivybridge Accountants we are always happy to help and advise our clients. This helps you avoid unnecessary costs and costly mistakes.