One of the most common sources of confusion for landlords across Surrey is knowing exactly which expenses can be deducted from rental income before calculating tax. Claim too little and you overpay. Claim the wrong things and you risk an HMRC enquiry. This guide sets out the key rules clearly.
The basic principle
You can deduct expenses that are wholly and exclusively incurred in the course of letting your property. Personal costs, capital improvements, and expenses unrelated to your rental business cannot be claimed.
Expenses you can claim
- Letting agent fees and management charges
- Accountancy and legal fees directly related to the property
- Buildings and contents insurance premiums
- Ground rent and service charges (for leasehold properties)
- Utility bills you pay as the landlord (where not recharged to tenants)
- Maintenance and repair costs — replacing like-for-like
- Advertising costs to find new tenants
- Mileage for journeys made exclusively for the property (55p per mile)
The repairs vs improvements distinction
Repairs — such as fixing a boiler, repainting a room, or replacing a broken window — are allowable. Improvements — adding an extension, installing a new kitchen where there was only a basic one — are capital expenditure and cannot be deducted from rental income in the same way. The distinction is not always clear-cut, so speak to your accountant when unsure.
Mortgage interest: the Section 24 rules
Mortgage interest relief has been replaced by a 20% tax credit, which is significantly less valuable for higher and additional rate taxpayers. If you have not adjusted your financial planning to account for this change, you may be paying more tax than necessary.
What you cannot claim
- The capital repayment element of your mortgage
- The cost of purchasing the property
- Capital improvements to the property
- Your own time spent managing the property
Keeping good records
HMRC expects landlords to keep receipts and records for at least five years after the filing deadline for the relevant tax year. Digital record-keeping makes this considerably easier and will be required under MTD IT for landlords above the income threshold.
Talk to us about your situation
Our chartered accountants work with small businesses, landlords and contractors across Surrey, Kent and Sussex. Get in touch for a free initial consultation.
