You are allowed to offset allowances, expenses and deductions to reduce the tax bill on your rental profit or create a deficit that can be used against other property income. Some items are however classified as improvements and these are used to increase the acquisition value (purchase price).
Council tax, water rates, mortgage interest, repainting and structure insurance are obvious. Others are trickier. What about replacement windows are these just replacements of the wooden frames which means that the cost can be claimed against rent for tax purposes or it is an improvement to the property and therefore an allowance for Capital Gains Tax purposes?
If the property is let fully furnished you can sometimes claim a 10% deduction for wear and tear (sometimes this is beneficial).
There are allowances for environment friendly improvements (up to 100% of cost) that can be set against the rents received for tax purposes. The means that the total cost paid out of your pocket is tax deductible and hopefully the improvement will increase your rent!
Furnished Holiday Lettings (Holiday Lets) have different rules and allowances. This means that you must be careful as to which set of rules apply.
The Inland Revenue consider that the letting for longer than a month is normally an investment whereas a Holiday Lets is treated as a business. A business can claim more generous expenses against rental income.
The holiday lettings rules will cease from April 2010 and rents will be treated using the usual rules for other rental income.
How can we help
This is a complex subject and our professional advice and experience can ensure that you benefit from claiming the maximum against the rental profits. Thus reducing your tax bill.
As Court decisions, changes in the Law and how the Inland Revenue interpret it all affect what can and can not be claimed.
We are here to help so please get in touch. An extra bonus is that our fees are a tax deductible.
Further Reading on Tax Allowable Expenses
- Expenses and allowances on income from property, by Inland Revenue
- How to Avoid Property Taxes, by Carl Bayley
- The Practical Guide to Buy to Let, by Infoguides
- Holiday Lettings – Directory, by Landlordzone
- Inland Revenue Leaflet IR150 Taxation of Rents. A guide to property income, by Inland Revenue