Buy to let has received a lot of bad press of late as a result of the incoming tax changes. However, there are a wide variety of costs landlords can claim and the vast majority of people are unaware of them. Whilst changes to the mortgage interest relief, wear and tear allowance and stamp duty may seem disheartening, landlords who are unaware of the following expenses may well be able to make up for some of their potential losses.
Letting and management fees are a prime example of a deductible cost. Depending on the type of property, letting agents can charge anywhere from 8%-15% of the monthly rental income in fees. If we take the example of a tenancy worth £750 per calendar month, as a landlord you could claim £1,350 per year in costs.
Obtaining a tenant
If letting agents seem too pricey, you can still claim back the costs of advertising and letting the property yourself. Advertising, credit checking, referencing, inventory costs, deposit protection and the purchasing of a tenancy agreement are all costs of letting as an individual. All of these costs can amount to over £300 per new tenant and you are able to claim back whatever these costs might amount to. Any phone calls, stationary or travel can also be expensed.
Mortgage Interest Tax Credit
Despite the changes to mortgage interest relief being phased in from this April, landlords can still claim a 20% tax credit. This only affects you if your income exceeds the 40% tax bracket. If you are above the higher tax threshold, you should seriously consider investing through a Ltd. SPV. You’ll only be paying corporation tax plus the cost of setting up the company (which you can also claim)!
If you’re using a decent broker, you’ll likely pay a fee for service. In addition to this fee will be the arrangement fee charged by the bank. This is currently still a cost landlords can claim; however, it is looking likely to change in line with the recent budgetary tax changes should the government continue with their clampdown.
Buildings and Contents Insurance
As a landlord, you take out specialist insurance to cover the potential loss of rent, the building and your liability to the tenants. For more cautious landlords, additional insurance costs could include rental guarantee and home emergency insurance, contents cover and legal expenses. On average, these expenses can amount to approximately £200 per annum which can be claimed.
Rent and Ground Service
Ground rent paid by leaseholders as well as maintenance charges paid by owners of properties in blocks/developments such as the costs of lighting, concierges, communal areas are all claimable expenses.
As a landlord, if you are paying any bills or tax that would usually be shouldered by the tenant, then you can claim them as expenses. Council tax and utility bills are prime examples of this and they can also be claimed throughout any void periods.
If you are using an accountant to submit your tax return or to manage the books of your limited company, their fees are deductible.
Many landlords will of course be aware of all of these claimable expenses, however a huge amount are yet to take advantage of them. Property portfolios when run as efficient businesses, can be far more profitable and passive than ad-hoc investments and to do so professional advice is often warranted. Nova Financial can not only help you to set up your limited company but can also advise on tax efficiency and portfolio structuring.
Angus’ main role is to advise Nova Financial’s clients on the most suitable real estate investments and strategies to ensure their clients remain on track and meet their financial goals. Angus joined Nova in 2016 having recently graduated from Durham University. He previously worked at an independent brokerage firm in the City of London, where he carried out extensive market analysis and helped advise and assist clients.