Investment Property Tax Deductions and Depreciation Explained

Tax-Deductible Expenses for Investment Properties

Landlords can often claim many of their costs related to the property investment against the income tax, thus lowering overall taxable profits. Here are some key expenses that may be eligible for deductions:

1. Mortgage Interest Relief: Instead of a total deduction in mortgage interest relief, which has been in the process of being completely phased out and replaced by a 20% tax credit.
2. Property Repairs and Maintenance: Predictable repairs like ordinary repairs or replacing washed-out fittings and fixtures are allowed while these should not be confused with improvement costs that enhance or add value to the property and thus are disallowed.
3. Letting Agent and Property Management Fees: Expenses for hiring an agent and other related services such as the hunt for tenants of the property are allowed deductions.
4. Property Insurance: Any amounts that you pay for landlord insurance, this policy covers building, contents, and liability.
5. Utility Bills: The amounts expended on the utilities for example, electricity, gas, and water if paid by the landlord can be offset.
6. Ground Rent and Service Charges: Related only to leasehold properties, these costs are usually allowed as deductions.
7. Legal and Professional Fees: Legal costs associated with activities, for example, the removals, taxes, and accountancy.
8. Advertising Costs: Expenses for placing the rental property into a new tenant are allowable.
9. Travel Expenses: A landlord may deduct direct travel expenditures or mileage if they travel to maintain, repair, or check the property.

Capital Allowances on Investment Properties

Compared to some other similar countries, the UK does not permit depreciation or ‘wear and tear allowances concerning the property structure of residential rental properties. However, the expenditure, which can be relieved through capital allowances, includes most intangible assets and the plant or machinery used in the property such as items in furnished holiday lets or commercial use.

• Furnished Holiday Lets: Residential landlords receive capital allowances on most fixtures and fittings within a property if the property is used as a holiday let. This entails items such as furniture, kitchenware and appliances.
• Commercial Properties: Items that are considered plant and machinery, such as air conditioners, elevators, and even essential elements like heating systems, are eligible for capital allowances.
• Replacement of Domestic Items Relief: When a landlord removes items such as furniture, appliances or carpets from a residential property, they can claim relief. This only applies to replacements, not new purchases, and it cannot be claimed if capital allowances have previously been claimed on the property (as in furnished vacation rentals).