What Can I Claim On My Buy-To-Let?
First a bit of basic accounting. All expenses fall into one of two categories and they are either REVENUE or CAPITAL and here’s a very simple summary of each:
Revenue is anything you spend on running costs such as ground rents, repairs, insurance, rates and some others which I’ll cover later.
Capital expenditure is what you spend when buying the property. This can include stamp duty and legal fees although there may be others. The cost of all capital spending can be offset against the sales price when you finally sell it. Make sure you keep any receipts for capital costs because you will need them when the property is finally sold, no matter how long you keep it for.
So, what can you claim to reduce your annual tax bill?
Probably the most common claim is for repairs but, like all expenditure, there are certain rules. You can only claim for repairs or renewals but not for renovations or extensions as these are capital items. So, if you have a builder to do some of the work make sure you get a detailed bill with the repair work listed separately.
Mortgage and I’m sorry to say it’s only the interest. I was speaking to a client recently and they thought it very unlikely they’d be paying any tax on their buy to let because of the high mortgage payments. They were disappointed to find out it was only the interest part of the payment they could claim. Also, instead of claiming it as an expense on the tax return a tax credit of 20% is given so basic rate payers will not see much of a difference, but higher rate payers will lose out.
If you want to claim anything for travel it is always best to keep a record of mileage. You can then claim 45p per mile for the first 10,000 miles and 25p thereafter. Never claim for fuel or any other vehicle costs.
Other costs can include insurance, rates, letting agents’ fees, professional fees (except for buying the property) and any services like electricity for common areas. There may be other quite legitimate expenses such as postage, stationery or even a TV license.
Finally, some bits to finish with…
If you try to buy a property and the deal falls through the expenses are not deductible.
Even if you make a loss in the first year it is always worth declaring it because it can be carried forward and offset against a future profit.
If your rents and any other business income exceeds £10,000 p.a. you will be required to report quarterly results from April 2024.
Now for the really bad news!
It’s not unusual to find your property in need of some sprucing up after the last tenant goes and you decide to sell. As you can only claim for expenditure incurred while letting the property anything you spend when the rents stop is, strictly speaking, a revenue item. As there are no rents against which to offset it the money spent, the tax deductibility will be lost.
Mistakes can be expensive so make sure you take professional advice. If you are unsure about anything it should always be remembered that the tax inspector will not take ignorance as an excuse and the penalties can be high. If you want to speak to someone, we are always happy to help and advise so just give us a call.