What tax deductions can I claim on my investment property?

What tax deductions can I claim on my investment property?
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    As a property investor, you can make significant tax savings on your investment properties by claiming them as allowable expenses on your tax return. Allowable expenses for landlords can vary for different types of investments, but ultimately, working with an experienced tax specialist can reduce your tax bill and increase your rental property income.

    What tax deductions can I claim on my investment property? There are several tax deductions you can claim on your property investments, including:

    • Property repairs and maintenance
    • Council tax and utilities
    • Mortgage interest
    • Legal fees
    • Advertising and marketing materials
    • Business travel expenses

    Our Directors, Barbara and Chris, have a large property portfolio (commercial and residential) spanning 30 years. Barbara also has over 30 years of experience as a tax advisor, making Archimedia Accountants best placed to help you build your property portfolio and save as much tax as legally possible for your property business.

    Many years of experience and enthusiasm have gone into crafting this well-informed blog for you to learn all you need to reduce your tax liability and boost profits. Keep reading for more information, or contact us today to find out how we can help you.

    What are allowable expenses?

    An allowable expense is any cost relating to your investment property that you can deduct from your rental income when submitting your Self Assessment tax return. It can be expensive to run a property rental business, so allowable expenses are an excellent way for you to claim tax relief on some of these unavoidable costs.

    How do you claim allowable expenses for investment properties?

    Claiming allowable expenses for your investment property can be a complex task. Keeping a clear track record of your expenses is a good way to ensure things are running efficiently and that you are making the most tax-efficient savings.

    The process involves adding the property costs incurred (such as repairs, bills and other business expenses) and subtracting them from the rental income. Once you have completed this process with your accountant, you will then need to inform HMRC through the property pages on your tax return (if you are self-employed) or through the accounts and company tax return (if you are a limited company).

    What allowable expenses can you make on an investment property?

    Allowable expenses that can be made on your investment property can include but are certainly not limited to materials, use of your home, business equipment, subcontractors, staff (if you run a payroll) and business travel expenses.

    Working out these costs can be tricky, especially in the instance of using your own car for business purposes. At Archimedia, we always encourage you to keep a track record of your expenses to make finalising your income tax bill or corporation tax return much easier. We will help you during the process and plan effectively so that you can make the most tax-efficient savings possible.

    How to keep a record of your expenses

    Depending on the size of your property business, we’d always recommend you use some form of accounting and bookkeeping software to record your expenses. You could benefit from property-business-specific software or professional accounting software like Xero. Much smaller property businesses can also start out using Excel.

    The most organised way to record your expenses is by recording every transaction and then coding that transaction to the type of expense it is (i.e. marketing or office supplies). You’re essentially creating a well-detailed report to give to your accountant, who can then implement a solid tax plan and put them onto your tax return at the end of the tax year.

    If you’re a limited company, the record-keeping of your expenses becomes a lot more complicated. You have to reconcile the bank and produce a balance sheet according to accounting standards. If this is the case, then we recommend using professional accounting software like Xero.

    The experienced accountants at Archimedia can assist you with the tricky task of bookkeeping. All you will need to do is give us your sales and purchase invoices through slick invoicing software, set up a bank feed in the software (so it draws your bank statements directly from your bank), and then we take over all the record-keeping for you.

    For more information on how we can support you, speak to a team member today. We’re more than happy to help!

    What isn’t considered an allowable expense for an investment property?

    We have gone over what is included as an allowable expense, so now let’s look at what might not be included as an allowable expense for your investment property.

    Generally, non-allowable expenses are expenses that don’t involve taking care of the property or maintaining your investment business. These can include:

    • Improvements to the property: if you make significant improvements or renovate your rental property and increase the property’s value, then this is known as ‘capital expenditure’ and cannot be claimed against income tax.
    • Personal expenses: can include any other finance costs unrelated to the property generating a rental income, such as personal phone calls, utility bills or non-business related travel.
    • Property restoration: if your rental property is not in a lettable state for new tenants, then the expenses incurred to get it to that state are not considered tax deductible.

    Summary

    Seeing your property investment as a rental business will really help you to make the most of your taxable income. You’ll be able to start claiming the most tax-efficient allowable expenses for landlords and, ultimately, make significant savings on your bill at the end of the tax year.

    Most things you pay towards your rental properties e.g. their council tax bill and utility bills, or are paying to maintain your property business, then these are all allowable expenses that you can claim under your tax return.

    Get in touch with our specialist property accountants today

    The team at Archimedia Accounts is built on a solid foundation of entrepreneurship and accounting expertise. Our owners, Barbara and Chris, can provide firsthand knowledge from their successful history of growing an extensive property portfolio. This personal industry experience, combined with 30 years of professional tax and accounting experience, gives Archimedia a kickstart to understanding your unique investment property needs.

    We have an innovative way of working with our clients, ensuring you get that personal interaction needed for developing financial success. You can expect a warm welcome and a thoughtful, tailored service aimed at helping you increase your personal wealth and achieve your life goals.

    Fill out our contact form for a free consultation and learn more about how we can help you!

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    FAQs

    To learn more about tax deductions concerning your investment properties, take a look at some of our commonly asked questions below, or contact us today.

    Are tax relief and tax deduction the same thing?

    While similar in concept, tax relief and tax deduction do have different meanings. Tax relief is a strategy put in place by you or your accountant to reduce your tax liability. However, a tax deduction encompasses part of that tax relief strategy by allowing you to deduct expenses from your income tax bill.

    Understanding the difference between these terms is important when looking to maximise property income on your investments. As your dedicated accountants, Archimedia can leverage these strategies to optimise your taxes, ensuring you benefit from making the most significant savings on your tax bill – now and in the future.

    Will the tax deduction be written against my rental income?

    Tax deductions are a way of deducting business expenses from your rental income, which, in turn, leads to less taxable profits. This results in less tax being paid to HMRC, saving you money and increasing your overall income.

    Can you appeal if an expense is rejected by HMRC?

    If you find yourself in the unfortunate event where HMRC has rejected an expense, then you may be able to appeal. The expense must be wholly and exclusively for business purposes and fall within the correct guidelines set by HMRC to be a reasonable expense. If you have done everything to the best of your knowledge, then HMRC should take this very seriously.

    What is the replacement of domestic items relief?

    Replacement of domestic items is a tax benefit that applies to landlords and owners of investment properties. It allows you to claim tax relief for the cost of replacing domestic items within your residential property, such as furniture, appliances and other household items that you might provide for tenants.

    There are specific regulations around the replacement of domestic items relief, including the item must be a like-for-like replacement, it must be purchased solely for the tenant’s use, it cannot be used to cover the cost of the initial purchase, and you must keep accurate records to support your claim.

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    Chris Demetriou

    Chris is Head of Business Advisory​ at Archimedia Accounts and is a specialist in tax. For more advice book a FREE consultation:

    Contact Chris

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