A rental business starts when the first property is let. Anything that is done prior to the first let is deemed to be preparing the property for let and not as a part of the letting activities. It follows therefore any expenses incurred once the rentals start are rightly treated as part of the rental business.
In most cases, expenses will be incurred prior to the first letting of a property. Whilst the rental business will not have started when the pre-letting expenses are incurred, subject to certain rules it is possible to claim a deduction against the future rental income.
The outline rules are the following:
The expenditure is revenue and not capital e.g. the costs of buying a property or improving a property are not allowable.
The expenditure must be incurred within the seven-year period prior to the commencement of the rental business.
For a full list of the type of expenses please see our guide here. These are some of the common items that potentially can be claimed:
Mortgage Interest: Relief can be claimed at 20% for the interest paid on buy-to-let mortgages. This 20% applies to both basic rate, higher rate, and additional rate taxpayers. In the case of Furnished Holiday Lettings relief, the relief is given at the marginal rate i.e. 20/40/45%.
Repairs and Maintenance: If it is necessary to repair the property prior to letting this is allowable to the extent that the work does not represent an improvement of the property.
Insurance Premiums: A landlord may well need to insure a property prior to letting and this can be claimed e.g. buildings and landlord insurance.
Letting Agent Fees: It may be necessary to appoint a letting agent to find tenants. This type of expenditure is allowable against future rents.
Council Tax and Utility Bills: Prior to letting a property a landlord may incur the costs of council tax, water, and other utilities. These will be allowable.
Advertising Costs: Often advertising will be needed to secure tenants. These advertising costs are allowable.
Legal and Professional Fees: Any legal and professional costs in respect of tenancy agreements or accountancy work are allowable.
It is important to keep all evidence of expenditure to enable a proper claim to be made and detailed to HMRC should the need arise.
Tax relief for expenditure incurred prior to the receipt of the first rental income on a BTL property can be a confusing area of tax, particularly for new landlords. It is therefore important to get professional guidance and ensure your claim will stack up in case of an inquiry by HMRC.
Get in touch on 01902 711370 or email enquiries@uklandlordtax.co.uk to book a call with one of our team of tax advisers to discuss the expenses you can claim.
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