Claiming property business expenses as a landlord. Here are some tips about some of the expenses that cause landlords and their accountants the most problems.Make Text Bigger
Buy to let property investors pay too much tax because they do not know how to claim property business expenses.
The sad fact is many accountants and tax advisers are little or no help because they do not have a clue what the taxman will allow as they are not property-orientated practitioners.
Property investors often ask for a list of expenses they can claim – but the fact is the list does not exist.
So here’s some tips about some of the expenses that cause landlords and their accountants the most problems:
- Aborted property costs – The cost of a deal that falls through is not allowed for buy to let taxpayers but are OK for buy to sell traders
- Travel costs – Buy to let landlords can claim these costs if they do not have a letting agent managing the property
- Home as office – Tax inspectors are ordered to ignore minor claims and will let them through without any records – minor means £3 a week or £156 a year.For property investors with large portfolios, HM Revenue and Customs suggests a formula to factor home running costs against the time and space used for business.
- Pre-letting costs – This category covers the money a buy to let landlord has to spend to bring a property up to standard for renting to a tenant.If this is the first property in a portfolio, the costs are counted as if they were spent on day one of the first tenancy agreement. If a landlord has more than one property, put them through the accounts like any other business expense.
- Owner’s time – Buy to let landlords cannot claim for their own time spent on managing their business
- Books, seminars, and training – The rule is complicated. As a rule of thumb, costs relating to personal development, like investment training are not allowed.
Some costs, like evening classes in building skills or bookkeeping might be deductible.
The taxman imposes a rule on expenses that say if the cost involved is ‘wholly and exclusively’ for the business, then the whole amount is allowed to set off against rental income.
This means spending £20 on paint to refurbish a letting property is allowed.
Part of the cost is allowed if an ‘identifiable’ portion of the expense was for a business purpose.
So, if a buy to let investor buys a £300 mower to keep the grass down at four rental properties plus at home, then the fair way to apportion the cost is to work out the total area of the five lawns, calculate the percentage of the area of the lawn at home and claim a share of the cost.
For example, the lawns come to 500 square metres and the lawn at home is 100 square metres.
The private use area is 100 divided by 500 times 100 is 20%, leaving 80% for business use.
The business cost is 80% of £300, which is £240.
If you would like further advice on tax or accountancy please call The Money Centre’s Customer Care Team on 01603 894525 and we will be delighted to refer you to our Joint Venture Tax Partners who specialise in property taxation. The initial introduction is a no cost no obligation service
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