Landlords often ask us about which elements of their spending can, and cannot, be offset against their rental revenues for tax purposes. 

We are of course, not accountants, and you should refer to them for advice on your own situation. However, our current understanding is that this complex area is best understood when you make a clear distinction between CAPITAL expense and REVENUE expense. 

For example, when you buy a buy-to-let property investment all the direct costs associated with the purchase, such as the purchase price itself, SDLT, survey and conveyancing costs are regarded as capital expenses and can only be offset against the eventual sale of the property some time in the future. This also applies to any improvements made as a result of initial renovation. 

Mortgage interest is regarded as a cost of “running the business” but can only be partially offset (by way of a 20% tax credit). Do consider this carefully because it is not inconceivable, especially if you are a highly geared higher rate tax payer, that your tax liability could exceed the your rental revenue! This is why some investors now choose to buy through a limited company in order to avoid this potential pitfall, as finance costs are currently offsettable in full.   

Any spend that could be regarded as “maintenance” can usually be offset. The key here is deciding what is maintenance as opposed to capital input. The definition in this context would ordinarily be the repair of a pre-existing part of the property, such as a roof repair, redecoration or fixing a boiler. This also applies to the replacement of things like washing machines, furniture and carpets. There is no longer any wear and tear allowance.  

Of course, any rental-related fees such as management charges, legal costs, insurance, gas/electrical compliance inspections and council tax (where this is not paid by the tenant) are also generally able to be offset annually. 

Do let us know if you need any guidance on these issues although we may point you to an accountant if there is any doubt as to what you can claim. 

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