Rental income expenses
In this weeks Ask LCM, we will be answering a question around rental income. More specifically “Can I deduct any expenses from my rental income?”
Ask LCM is a space that we have put together where every week we answer one of your questions. We aim to keep the answers in short format so everyone has the time to read, learn and progress together.
Most people probably have a good idea what rental income is.
However, this is actually a lot more broad then what people initially think.
The most common type of rental income is income from a residential property. This is the type of rental income that we will focus on in this article.
However, there are many different types of rental income including that from a commercial office block, billboards, land and equipment just to name a few.
Tax on rental income
Rental income is taxable in the UK. This does mean that you will have to pay taxes on your income.
If a company is receiving rental income, then the company must pay corporation tax on this.
If an individual or individuals are receiving rental income, then the individual or individuals must pay income tax on this.
But it is not your total income that you pay taxes on. Instead, tax is payable on your profit after deducting all allowable expenses.
So going back to the original question, “Can I deduct expenses from my rental income?”. The answer here is YES.
There are many different types of expenses which you can deduct which we will explore now.
There are many different types of expenses that you are allowed to deduct from your rental income to reduce your tax liability.
Too many to list here. So we will focus on the most common types of expenses that we see.
1) Estate agent management fees.
2) Service charges.
3) Ground rent.
4) Council tax – Only if you have to pay the council tax. Usually this is paid by the tenant.
5) Gas safety & EICR tests.
6) General maintenance.
7) Accountants fees.
As mentioned above, general maintenance and repairs are an allowable expense which you can deduct from your income to arrive at your profit.
Such things may include re-painting the walls. Or fixing a broken tap.
However, significant improvements are not an allowable expense. For example, replacing a laminate kitchen worktop with a granite worktop. This is seen as an improvement, not a like-for-like repair.
Also, major structural expenses may be classified as capital expenditure and therefore also not be deductible.
An example could be building an extension.
This is now a little trickier then it was a few years back.
Companies can still deduct 100% of any mortgage interest as an allowable expense.
Individuals now get a tax credit at 20%. This works a little differently to a normal allowable expense.
We hope that you found this article useful. If you have any questions about the above, or need help calculating your taxes, please do get in touch.