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Landlords still able to offset ‘vast majority’ of costs against tax

Wednesday 06 February 2019

Buy-to-let landlords in the UK claimed £17.7bn in tax relief last year, up from £17.4bn the previous year, a study by ludlowthompson reveals.

Even once all of the government’s planned reductions to buy-to-let tax relief are fully implemented by 2020, the report claims that landlords will still be able to offset £16.7bn of their expenses against rental income.

Restrictions to tax relief introduced since 2015 include changes to the way wear and tear allowance is calculated and the amount of income tax relief available on interest on mortgages – also known as Section 24.

Landlords were able to claim £7bn in tax relief on mortgage interest and other financial costs in the last year.

A further £4.1bn was claimed for property repairs and maintenance.

Landlords are still able to claim tax relief when purchasing furniture for a rental property under the wear and tear allowance.

Stephen Ludlow, Chairman at ludlowthompson, said: “The tax grab on buy-to-let investment is unwelcome but it has not undermined the attractions of buy-to-let - especially when compared to the volatile stock market.

“You’re still able to offset the vast majority of your costs - ensuring landlords will still benefit from tax relief on a high proportion of their rental income.

“Tax reliefs are one way that can incentivise landlords to continue investing in their rental properties thereby improving the quality of rental stock across the UK.

“If landlords are not allowed to offset their costs, they may be dis-incentivised from investing in buy-to-let – and that would impact the supply and quality of rental property as a whole.

“Policy-makers need to ensure they still encourage landlords to invest in buy-to-let. They are essential for ensuring a strong supply of high-quality rental property.

“This helps improve labour mobility, particularly in large economic hubs such as London. The government should look to keep further intervention in the sector to a minimum.”

Richard Truman, Head of Operations at Simple Landlords Insurance, said: “As a landlord you have to pay tax on the profit you make from renting out your property. Your profit is calculated by deducting ‘allowable expenses’ from your rental income.

“An allowable expense is anything you have spent wholly and exclusively for the purposes of renting out your property.

“Examples include general maintenance and repair costs, water rates, council tax and gas and electricity bills (if paid by you as the landlord), insurance, services (cleaners, gardeners, ground rent), agency and property management fees.

“Since 2017, your mortgage interest payments are not allowable. You will still get relief on your mortgage interest payments but at a reduced rate.

“Spending money in order to provide a lasting benefit to your property is considered a capital expense and these outgoings cannot ordinarily be deducted from rental income.”

HMRC have produced a comprehensive guide to a landlord’s tax obligations here.

You can read more about Section 24 and what it means for landlords on the Simple blog here.

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