The expenses you can deduct from letting income (unless it’s under the Rent a Room scheme) include:
If your annual income from the letting is less than £15,000 (before you’ve taken off expenses) you include the total expenses on your tax return; if it’s £15,000 or over you need to provide a breakdown.
Bear in mind that you can only claim expenses that are solely for running your property letting business. If the expense is only partly for running your business (or if you use the property yourself) then you may only be able to claim part of it.
When you work out your profit, you can’t deduct:
But you may be able to claim some allowances instead.
There are different types of allowance you may be able to claim for your capital costs. Capital costs include expenditure you make on assets like furniture and machinery. The allowances you can claim for some of your capital costs vary according to the type of letting.
For furniture and equipment provided with a furnished residential letting (excluding UK furnished holiday lettings) you can claim a 'wear and tear' allowance. The allowance is 10 per cent of the 'net rent' - this being the rent received less any costs you pay that a tenant would usually pay.
As an alternative to the wear and tear allowance, you can claim a 'renewals' allowance. This covers the cost of replacing furniture or equipment, including small items like cutlery. To work it out, take the cost of the replacement item and deduct from it:
Once you've chosen which of these allowances to claim for a property, you can't switch between them from year to year.
For this type of letting you can claim a 'capital allowance' for the cost of each item of furniture and equipment you provide with the property. Or you can claim a renewals allowance (explained above). You can't claim wear and tear allowances.
Once you make a choice for each item, you must keep to it.
To find out how capital allowances work see the section below: 'How much capital allowance can you claim?'
Whatever the type of letting, you can claim a capital allowance on the cost of things that you need for running your property letting business, like cleaning and gardening equipment. You can also claim for equipment that isn't for the use of a single let property, like a boiler that heats more than one property.
The allowance depends on what you buy. You can usually claim 50 per cent of the cost when you buy it - but sometimes 100 per cent for some environmentally friendly expenditure. Each year after that you can claim 25 per cent of what's left. HM Revenue & Customs (HMRC) changes the percentages change from time to time. The allowance is deducted along with other expenses in calculating your profits
You'll get smaller allowances if you use the item privately or for anything other than your business.
You have to allocate expenses to the year they apply to – it doesn’t matter when you actually pay them. Sometimes you may have to allocate part of an expense to one year and part to another.
Normally, if your letting business makes a loss, you can carry it forward to a later year and offset it against your future profits from the same business. If it’s a UK holiday letting business you can offset your loss against all of your other income, not just your property income.