Subscriber Questions - Offsetting expenses against buy to let rental income

Q: What expenses can I offset against my buy to let rental income?

A: When you are working out how much tax you need to pay on the profit you have received from renting out a property, you start with the income you have received (i.e., the rent) and take away any expenses or allowances (such as allowances for replacement of domestic items) you can claim. This is then reported on your Self Assessment tax return.

The expenses can only be deducted from the income if they are wholly and exclusively for the purposes of renting out the property. You should keep a record of all your receipts and invoices to make this process easier.

Expenses you can deduct if you pay for them yourself are:

• general maintenance and repairs to the property, but not improvements
• water rates, council tax, gas and electricity
• insurance, such as landlords’ policies for buildings and contents
• costs of services, including the wages of gardeners and cleaners
• letting agent fees and management fees
• legal and accountant’s fees
• 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) including mileage rate deductions for business motoring costs

Expenses you cannot 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 as a tax credit, based on 20% of the mortgage interest payments.
• private telephone calls (i.e., not ones relating to your property rental business) or other personal expenses, including clothing
• anything classed as ‘capital expenditure’, such as something added to the property that was not there before or altering, improving or upgrading something that was existing

If you would like any further information on the question we have answered above, or have a personal tax question of your own you would like us to assist with, please contact us at taxadvisory@paystream.co.uk.