There has been a large increase over the years in the number of people who own “buy-to-let” properties. It is timely to remind people that this income needs to be reported to the tax office. At the same time, care should be taken to ensure that tax is minimised by claiming all allowable expenses.
Many expenses are obvious. These include:
- Insurance, including building, contents and public liability
- Rates, water, ground rents, gas and electricity
- General upkeep and repairs such as gardening, cleaning and property repairs (but not improvements)
- Accountancy and, in some circumstances, legal costs
However, there a number of expenses that may be overlooked, and we will look at a few of them here. But please remember that to be allowable the expenses must be incurred “wholly and exclusively” for the purpose of the “trade”.
Firstly, there are travel and motor expenses incurred. There are two ways of calculating the allowable deduction for using your own car. You can collect all of the costs of running the car over the tax year and then apportioning them on the basis of allowable mileage compared to total mileage. Alternatively, you can record the allowable mileage and claim that at the “Authorised Mileage Rate”, currently 45p per mile for the first 10,000 miles and 25p per mile thereafter.
Always, you must remember the “wholly and exclusively” rule which must be applied to each part of a journey. For instance, suppose you drove from home to a DIY shop to buy a plumbing part (first leg), and then continued to the rented property to fit it (second leg). You then drove to a supermarket (third leg) on the way home (fourth leg). The first two legs of the journey are deductible. However, there is a “duality of purpose” for both of the third and fourth legs that excludes a deduction.
Secondly, there is a deduction for the costs of use of your home as an office. These costs include mortgage interest or rent, council tax, rates, insurance, heat and light, etc. Again, there are two methods of calculating the deduction. The total expenses for the tax year can be collected, and then apportioned in the ratio of the number of rooms used as an office compared with the total number of rooms in the property, and then by the number of hours that those rooms are used exclusively each day as an office over the full 24 hours in a day. Alternatively, you can use a fixed rate depending on the number of hours spent each month by the landlord on his “trade”. For instance, you can claim £120 pa if you spend up to 50 hours per month, increasing to £216 pa up to 100 hours per month, and £312 thereafter.
WatkinsonBlack have considerable experience in all areas of taxation and business services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.