Allowable Expenses for Buy-to-Let Properties: Tax Benefits

Allowable Expenses for Buy-to-Let Properties

Landlords who own buy-to-let homes can take advantage of tax deductions by deducting a variety of costs from rental income. The usual permitted costs for buy-to-let homes are as follows:

Mortgage Interest or Loan Finance Costs

Interest on mortgages and other expenditures related to loans prove to be very costly to most landlords. In many countries, the expenses are offset through tax relief, though it has different structures in different countries. In the UK this is partially made up through a 20% tax credit (Mortgage interest relief). Other countries may allow full or partial deductions Arrangement fees or other loan costs can be spread throughout the loan.

Repairs and Maintenance

The expenses incurred to keep or restore the rental property to its condition are tax deductible by the landlords. Amounts of these costs are taken out of rental revenue which reduces the taxable income and keeps the property habitable and operational. Any repair that was done on damaged windows, doors or even on the lock is considered an eligible repair. It also includes repairing faulty electrical components as well as repairing or correcting leakage in roofs or pipes.

Insurance Premiums

Insurance costs incurred in connection with rental properties are defined as allowable expenditure as such can be offset against the rental income and thus decrease the landlord’s reportable profits. Apart from having the right insurance on the right risks, a significant advantage of insurance is realized through tax relief. Different insurance premiums that are eligible for deductible include landlord insurance, building insurance, contents insurance, etc.

Legal, Accounting, and Professional Fees

Various costs like legal fees, accounting, and professional fees related to the management of rental properties may be claimed as tax deductions by landlords. They are useful when they are incurred on something like the management of a property or some compliance issues. However, it is important to establish which deductible fees are and which one falls under the category of capital allowable fees.

Wear and Tear Allowance

The wear and tear allowance assists landlords in recovering the cost of the replacements if the assets are in the furnished rental business. While many countries have altered or substituted this allowance for a more precise one, such as replacement furniture allowance in the UK, it remains a useful concept for landlords working with furnished units.