Costs that can be deducted by individuals that have a property rental business, depend on the type of property that is being rented out. There are three main categories of property business that need to be considered.
Residential properties
This is by far the most common type of investment property held by individuals. Tax relief can be claimed on allowable expenses incurred in the day-to-day letting of the property. These can include expenses such as:
- letting agent’s fees,
- certain legal fees,
- accountant’s fees,
- building and content insurance and
- certain services paid for by the landlord such as cleaning or gardening.
Landlords can also claim the Replacement of Domestic Item Relief. The relief allows landlords to claim for the replacement of items in a rental property, for example: furniture, furnishings, appliances and kitchenware. There is no relief available for the initial cost of domestic items purchased for a new or existing rental property, and the relief is restricted where a replaced item is also an ‘improvement’.
In addition, as most of our readers will be aware, the tax relief on finance costs (such as mortgage interest) used to buy investment properties is gradually being restricted to the basic rate of tax. This restriction will be fully in place from 6 April 2020. In the current 2018-19 tax-year, the amount of higher rate tax relief on finance costs is restricted to 50%.
Furnished holiday lettings
The furnished holiday let rules allow holiday lettings of properties that meet certain conditions to be treated as a trade, and therefore, qualify for a number of additional tax reliefs. These include: Capital Allowances for items such as furniture, equipment and fixtures as well as a number of valuable Capital Gains Tax reliefs.
Commercial properties
It is more likely that commercial properties will be owned via a corporate structure. However, individuals that own and rent out commercial properties can claim plant and machinery capital allowances on qualifying assets.
Planning note
If you are considering the purchase of your first investment property, of which ever type, it is worth considering your tax planning options before committing to the acquisition. Tax planning like holiday planning is best contemplated in advance to reduce any avoidable glitches. We can help.
