Landlord Tax. Tax relief changes for landlords
Updated: Apr 25, 2019
The amount of Income Tax relief landlords can get on residential property finance costs will be restricted to the basic rate of tax.
The changes will:
affect you if you let residential properties as an individual, or in a partnership or trust change how you receive relief for interest and other finance costs be gradually introduced over 4 years from April 2017
Finance costs won’t be taken into account to work out taxable property profits. Instead, once the Income Tax on property profits and any other income sources has been assessed, your Income Tax liability will be reduced by a basic rate ‘tax reduction’. For most landlords, this’ll be the basic rate value of the finance costs.
Who will the changes affect?
These changes will only affect landlords in the list below who have a mortgage for their rental property.
Any UK resident individual who lets a residential property in the UK or overseas any non-UK resident individual that lets a residential property in the UK An individual who lets residential property in partnership with others Trustees of a trust directly holding UK residential property
NOTE: These tax changes will not apply to landlords of furnished holiday lets and commercial properties.
What is an allowable expense?
An allowable expense is anything you have spent wholly and exclusively for the purposes of renting out your property. This broadly means any expenditure in relation to the property’s up-keep.
What expenses are allowable?
Some examples of allowable expenses are:
General maintenance and repair costs water rates, council tax and gas and electricity bills (if paid by you as the landlord)Insurance (landlords’ policies for buildings, contents, etc)Cost of services, e.g. cleaners, gardeners, ground rent agency and property management agent fees
What expenses aren't allowable?
Not all costs you incur are considered allowable expenses. The most important examples of these are:
From 2017, your mortgage interest payments. You will still get relief on your mortgage interest payments but at a reduced rate. Read our quick overview of the tax change to see how the changes will be phased in.The capital element on any mortgage repayments Items used for your personal enjoyment
investing funds in order to provide a lasting benefit to your property is considered a capital expense.
These outgoings cannot ordinarily be deducted from rental income. Generally capital expenses are when you:
Improve or enhance the property purchase furnishings and equipment for the property
Relief for replacing domestic items
When spend cannot be considered an allowable expense, or cannot be offset in the future against capital gains tax, you may be able to claim Replacement of Domestic Items relief.
From 6 April 2016, this relief has replaced the Wear & Tear allowance.
The relief applies to:
Movable furniture, e.g. beds, wardrobes, etc furnishings, e.g. curtains, carpets, etc household appliances, e.g. washing machines, fridges, etc kitchenware
For the relief to be applicable the following must be fulfilled:
The expense must have been incurred to replace a domestic item the old item must no longer be available to use at the dwelling the new item must be for the exclusive use of the tenants at the dwelling
If your expense falls into the above categories, it does not matter if your rental property is unfurnished, part furnished or fully furnished.
Where a new item is an improvement, you can only claim relief on the cost of an identical item.