When you work out your taxable rental profit you can deduct allowable expenses from your rental income. The expenses must be wholly and exclusively for the purposes of renting out the property. This means that if an expense wasn’t incurred for the purpose of your property rental you can’t offset the cost against the rental income. The expenses must also be revenue, rather than capital expenses.
Common types of expenses you can deduct if you pay for them yourself are:
- general maintenance and repairs to the property, but not improvements (such as replacing a laminate kitchen worktop with a granite worktop)
- water rates, council tax, gas and electricity
- insurance – landlords’ policies for buildings, contents and public liability
- interest on a mortgage to buy the property
- costs of services, including the wages of gardeners and cleaners
- letting agent fees and management fees
- legal fees for lets of a year or less, or for renewing a lease for less than 50 years
- accountant’s fees
- rents (if you’re sub-letting), ground rents and service charges
- direct costs such as phone calls, stationery and advertising for new tenants
- vehicle running costs (only the proportion used for your rental business)
Expenses you can’t claim a deduction for include:
- the full amount of your mortgage payment – only the interest element of your mortgage payment can be offset against your income
- private telephone calls – you can only claim for the cost of calls relating to your property rental business
- clothing – for example if you bought a suit to wear to a meeting relating to your property rental business, you can’t claim for the cost as wearing the suit is partly for your rental business and partly to keep you warm – no identifiable part is for your property rental business
- personal expenses – you can’t claim for any expense that was not incurred solely for your property rental business
Claiming part expenses
You might incur a cost where only part of it is expense for your property rental business. If a definite part of a cost is expense incurred wholly and exclusively for the property business, you can deduct that part. For example, if a property is used for private purposes for 3 months and commercially let for 9 months, then 9/12ths of the mortgage interest can be deducted from the rental income.