Free tax advice from the Government and tax changes

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Did you know that the government do free webinars regarding tax for landlords? You can sign up for an email from the government by clicking here. You can also register on the next live webinar from the government which takes place on Monday 21st June.

The government are running webinars for people to understand what the situation is regarding the tax.

Do you know what expenses and allowances a landlord can claim?

Do you understand about the super deduction that has been recently announced by the government?

Expenses and allowances a landlord can claim.

You can reduce your tax bill as a landlord by deducting many expenses you incur when renting a property out. There are various rules when it comes to landlords on how you can claim on the running of your expenses. These relate to the running and maintaining of your property which eventually will reduce your tax bill.

If the rent you charge covers services like water or council tax, you will need to count the rent you charge the tenant with your income.

But you can claim the costs you pay as an expense. Some of the examples of costs are;

Water rates

Council tax

Gas

Electricity

Landlord insurance

Cost of services, including the wages of gardeners and cleaners (as part of the rental agreement) letting agent fees.

Legal fees for lets for a year or less, or for renewing a lease less than 50 years. Accountant fees, rents, ground rents and services charges. Direct costs such as phone calls, stationery and advertising for new tenants. Vehicle running costs (only the portion used for your rental business) including mileage rate reductions for business motoring costs.

Expenses you cannot claim a deduction for include;

The full amount of your mortgage payment

Only the interest element of your mortgage can be offset against your income.

Private telephone calls.

You can only claim for the costs of calls relating to your property rental business.

Clothing.

For instance, if you bought a suit to wear for business. You cannot claim the cost of wearing the suit partly for your rental business.

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Personal expenses.

You cannot claim for any expenses that were not incurred for your property rental business.

Expense should be incurred holy and exclusively as a right of renting out your property. If for instance it includes other properties, then you would need to take a proportion of it. If you only let part of your home for instance and you only let it out partly of the year, then you have to proportion the expenses.

You can also claim some interest on a buy to let mortgage. However, these rules are complicated and change on a yearly basis.

Landlord mortgage interest rate relief in 2021-2022.

From April 2020 you are no longer able to deduct any of your mortgage expense from the rental income to reduce your tax bill.

Instead, you receive a tax credit, based on 20% of your mortgage interest payment. This is less generous for higher rate taxpayers, who effectively receive full percent tax relief on the mortgage payment under the old rules. The new system is being phased in over serval years.

From 2021 tax year, you can deduct one quart of your mortgage interest payments, while three quarters of your mortgage interest payments receive tax credits. We would also advise you speak to your accountant in this regard.

Annual investment allowance for landlords.

If you are a landlord, you cannot deduct expenses for capital nature from the rental income you have earned. This means, you cannot deduct the cost of running building extension or renovating at home that is in a run-down state. However, you may be able to use the cost of these investments to reduce your capital gains tax bill when you come to sell the property.

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Super deduction and 50% first year allowances.

Landlords were originally left disappointed when the new 130% super deductions and 50% first year allowances were announced in the March budget 2021. This was due to the proposed legalisation containing exclusions for plant and machinery for leasing. The government resisted calls for change.

However, changes have now been made to the draft legalisation so that background plant and machinery in a building should now qualify for these allowances. This is great news for landlords looking to invest as there is no upper limit to these new enhanced for lease. However, you should speak to your accountant whether these deductions relate to you.

Changes to landlords wear and tear allowance.

If you have a property or many properties that you let out fully furnished, you used to be able to claim for wear and tear of furnishings, such as cookers, carpets, beds, and televisions.

The wear and tear allowance you could claim a maximum of 10% on the net annual income (income less expense) each year. The government have of course now changed this. The government now allows you to claim tax relief on anything you spend on replacing white labels (A domestic item).

Crucially, this only applies to items you are replacing. You cannot claim tax relief on refurbishing your property for the first time with furniture and appliances. It can only apply when items are replaced and no longer used in the property.

What qualifies for the “replacement of domestic items relief”?

The government has given various examples of what domestic items can qualify this new relief and they include things such as;

Replacement of beds.

Replacement of carpets.

Cookery or cutlery.

Replacing curtains.

Replacing fridges, washing machines.

Sofas.

You need to ensure that you only replace on a like for like basis. For instance, if you bought a fridge for £600.00 in the first instance but you replace it now with a fridge for £400.00. You can only claim the £400.00 relief. You can also normally claim for the cost of disposing items as they are now expensive.

Increasing your mortgage.

If you increase your mortgage loan on your buy to let property you may be able to treat interest on an additional loan as a revenue expense. You might be able to get relief against income tax if the additional loan is holy and exclusively used for the purpose of letting the business. Interest on any additional borrowing above the capital value of the property when it was bought in letting business is not deductible. If the mortgage is for a residential property, then the restriction on interest from April 2017 will apply.

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