What can be offset against rental income?

10 Jun 2019

What can I offset against my rental income when completing my self-assessment tax return?

Self-assessment tax return completion for first-time landlords (and experienced ones!) can be a minefield. It seems fairly simple – you register for self-assessment (assuming this is the first time you will be earning income which does not have tax deducted at source (PAYE)) and then complete your return working out the total income less the allowable expenses incurred by the rental property. Simple? Well sort of…

So what expenses are tax deductible?
It’s about what reasonable – so what could you argue is a reasonable expense which you have incurred because you rent out a property and received a rental income.

Obvious ones are:
Agent management fees, factor fees and insurance premiums

What about costs incurred to ensure your property meets regulatory safety standards? These are allowed, for example;

Gas safety, installation of smoke alarms and electrical inspection condition report

Self Assessment TaxWhat about repairs?
Costs incurred to repair a leak, for example, are allowed, or to fix a broken shower.

But, what about replacing a kitchen – this is where we start to stray into a more tricky area. Replacing a unit in a kitchen is allowable, and even replacing a kitchen in full is allowable – but only as long as it’s not bettering the standard already in the property. So, if you replace your Ikea kitchen with another Ikea kitchen of simple relative cost, that would be OK, but if you decide to replace the Ikea kitchen with a bespoke handmade kitchen costing double with granite worktops – that would not be allowable. If you replace the bath with a substitute, that’s ok, replacing it with a Jacuzzi, is not.

Improvements, as long as they are reasonable, are fine – so the cost of paint, or a painter, is allowable – but taking down the wall between two rooms is not. You can also claim for travel expenses to and from the property. There is actually a fair bit you should remember to offset – you need to make the most of your expenses to minimise the tax burden!

It sometimes pays to ask a professional to help – in the long run, you might find it saves you money even though there may be a cost to use one (remember that’s a deductible expense too!)

Remember, to make the most of your personal allowance you might want to consider who the legal owner of the property should be if it is owned by a couple, and then there is the dilemma about limited company ownership versus personal, but that’s for another day!

The guys at Scott Moncrieff are really helpful. Contact details: Graham.Ratcliffe@scott-moncrieff.com

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