PROPERTY: Correctly claiming tax relief on your rental property

Capital v expenditure

It’s a common area that landlords get wrong, as not all expenses are directly deductible from rental income. This is why it is important to distinguish between expenditure costs and capital costs, and understand the differing tax treatment of each.

Expenditure costs:

Are deductible from income with 100% tax relief in the period and are typically expenses that are required for the general running of the property.

Capital costs:

Can also receive tax relief but via a “capital allowance” and relate to more significant improvements to the property or alternatively new furnishings and equipment.

Repairs v Property Improvements

This confusion particularly applies to expenses relating to the fine line between “Repairs and Maintenance” and “Property Improvements”. Repairs and maintenance (including most replacements) is categorised as an expenditure cost and therefore offset against rental income compared to property improvements that is categorised as a capital cost. For some purchases it is not obvious which is the correct allocation without the help of a professional. There is a  toolkit available by HMRC that provides information on how to differentiate if a cost is considered “capital” or “expenditure” but it is a lengthy document. Figurit ensure our clients claim tax relief in the correct manner.

Duality of purpose

Another important factor is that for an expense to be allowable for tax relief, it needs to be wholly and exclusively for the use of the property. If there is a personal element then it is likely that the entire cost will be disallowable. For example, you purchase a lawn mower that you keep at home and use just occasionally at your rental property. This should, technically, be disallowable. Figurit are fully up to date with Property Tax and can help shed any light on grey areas. Call to speak to one of our experience commerical team: 020 7376 9333