Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.
If you’re an owner of a rental property, it’s important to be aware of all the expenses available to claim and deduct from your rental income. Once these allowable expenses have been deducted, that’s considered your taxable income. Do you know what you can actually classify as an allowable expense so you do all you can to reduce your tax bill?
Allowable expenses will need to be revenue, as opposed to capital, expenses and they must be “wholly and exclusively for the purposes of renting the property” — any cost you incur to run and maintain the property.
A capital expense refers to something that results in an improvement to the property – an addition that wasn’t there previously or an upgrade to something already existing.
Examples of allowable revenue expenses:
- Mortgage interest*
- Utilities such as water rates, gas, and electricity
- Council Tax
- Costs of services e.g. service charges, gardeners, and cleaners
- Landlord insurance
- Letting agency fees
- Accountancy fees
- Select legal fees for lease renewals
- Advertising costs for new tenants
- General maintenance and repairs (not improvements)
- Replacement costs for certain domestic items in a residential property
*A note on mortgage interest tax relief
As of April 2020, the way you receive tax relief on mortgage interest will change and it’s not entirely favourable to landlords.
Instead of deducting the mortgage expenses from your rental income to lower your tax liability, you’ll get a tax credit. The credit is based on 20% of your mortgage interest payments — a step down from what higher-rate taxpayers used to receive under the old rules where they previously received an effective 40% relief.
Luckily, this new process was phased in over several years. For the 2019/20 tax year, you’re allowed to deduct 25% of your rental income and you’ll get a credit on 75% of your mortgage interest payments. But as of April 2020, all mortgage interest will only get the tax credit moving forward.
If you own rental properties, speak to us
These are only a few of the ways you can save on tax and not all of them are exactly straightforward. If you’re unsure of exactly what’s allowed, particularly differentiating between maintenance, repairs, and improvements, it’s best to keep a detailed record for your IFA and accountants so they can clarify and ensure you’re claiming everything you can.