Lettings advice: Top tax tips for new landlords

Posted 4 August 2014

In the latest of our tips articles for new landlords, we give an overview of how landlords can get their tax affairs in order. 

As a new landlord, you will be busy making sure the property is up to scratch, finding and vetting tenants, sorting out safety certificates and dealing with estate agents. Although it may seem that you are working your way down a never-ending to-do list, it is important to remember to sort out your tax affairs, and here's a quick five point guide to get you started on the basics.

Income tax
Whether you let one property or a dozen, residential letting is considered as a business and taxes must be paid against your overall income. This means if you encounter losses from renting one property, these can be offset against profits gained from letting other properties.

Allowable expenses
Allowable expenses are costs incurred solely for the purpose of renting out your home. These expenses can be offset against your tax bill and can include (but are by no means limited to) estate agent fees, legal fees, landlord insurance, mortgage interest and property maintenance, in addition to utility bills and council tax (if paid by the landlord). Your overall rental income minus these expenses is your net income, and this must be declared to the Inland Revenue.

Capital expenses
Capital expenses are those that increase the value of your property - and therefore cannot be deducted from your income tax declaration. Capital expenses commonly include structural renovations and extensions to a property.

Furnished properties
If you let out your home on a part-furnished or furnished basis, you may claim a ‘wear and tear' allowance, which permits you to make a deduction from your declared rental income equal to 10% of the net rent per year. Renewals Allowance is an alternative to this, whereby landlords can claim tax relief on the cost of furniture replacement. Only one of these two allowances can be used at a single property.

Energy saving
Until 2015 landlords can claim for the cost of loft, wall and floor insulation and draught proofing up to a value of £1500 per property. More details about the Landlords Energy Saving Allowance Scheme are available from the Energy Saving Trust.

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