Self Assessment for Landlords: 3 Expense Claims Landlords Get Wrong

Most accountants will deal with hundreds of Self Assessment tax returns each year so we’ve been wondering which part of this notoriously complicated form and its rules do landlords most commonly get wrong?

It’s a question that we put to experienced Chartered Accountant Sudipta Moore, who runs Moore Accountancy in Manchester.

Repairs and renewals versus improvement

The HMRC makes a clear distinction between ‘repairs and renewals’ for a property and capital expenditure or ‘improvement’ and Sudipta says her clients find this an area of confusion.

“I think a lot of landlords don’t realise the difference between the two types of expense and just see all costs as legitimate expenses that they can offset against their income tax, but we have to sit them down and explain there’s a difference,” she says.

“I think this is because many of our clients are accidental landlords who see buy to let as a sideline and not a ‘business’ as such and therefore they don’t pay attention to the subtleties of Self Assessment.”

Sudipta says it’s difficult for many landlords to understand the difference between a repair such as repairing roof tiles that have blow off a roof, and improving a property – for example adding an loft extension. The latter can only be claimed against Capital Gains Tax liabilities when the property is sold, while the former can be set against income.

She added, “This is all the more important given the recent changes to Private Residence Relief."

Flipping between wear and tear and renewals

On this subject, Sudipta said, “A lot of landlords also don't understand that you can't claim for a new bed, for example, if you've already claimed your 'wear and tear' allowance. They often think you can claim both, which you can't.

“And many of our clients want to flip between claiming renewals against their income one year and then switching to ‘wear and tear’ the next, but HMRC doesn’t like you doing that.

“So for example if you have a portfolio that’s full of student lets or other types of property that have a high turnover of tenants, low rent and heavy use, then it's probably better to not claim the 10% wear and tear allowance and claim for renewals instead.

“So, if you have a property and you have the sort of tenants who only stay for a year or two and you only need the occasional expense like a lick of paint or replacement white goods then it's better to claim wear and tear. But the idea is, you have to plan ahead a bit.”

What’s a furnished property?

Sudipta says wear and tear can only be claimed against a furnished property, but many of her clients think this can just mean ‘white goods and a few chairs’. You are able to claim the wear and tear allowance only if the property has, at the very minimum, furniture for the tenant to eat on, sit on and sleep in - and somewhere to store their clothes.

“Curtains, of course, as well as crockery and lamps are optional,” she says. “But we suggest that there’s no need to be too mean as the wear and tear allowance generally means you recoup your money on the cost of any furniture.

“For example, if you're renting out somewhere for £1,200 a month and spend £1,400 on furniture, then the 10% rule means you'll get your money back, although that's more difficult outside London where rents are lower, particularly the further north you go.”

Note that furnished holiday lettings have separate rules and that these points only relate to residential property.

Click here for a quick guide to other expenses you can claim on the Self Assessment tax return.