Confused about what’s tax deductible on a rental property

[Dreamtopia]

Hello,

I’ve started my tax return before January for once as I started renting out my flat in December when I moved in with DP (it’s his property if that’s relevant).

I’ve got to the section in the tax return where it asks about the rental profit and expenses and I can’t quite figure it out and am hoping someone might be able to help.

I paid a starting fee with a letting agent and pay them £35 a month to manage the property. The flat is leasehold and I pay £80 a month to the management company.

My mortgage is £434 per month and the interest part of that is about £300.

The monthly rent I am paid is £575 minus the letting agent fee of £35 so £540.

I only work part time so my annual wage is about £10k.

Can anyone help by telling me what I count as income/expenses please? Thank you

You can offset expenses against the £575 rent. This will include all agent fees. It used to include mortgage interest but the rules have changed. As you're a 20% tax payer, in effect, you can still offset it, but you have to declare income first and then you get a 20% rebate for the mortgage interest part. Hope that makes sense!

£35 monthly
£80 service charges
£300 interest charges

Anything else that has a nexus from the date of letting :

Gardening costs
Repairs and maintenance
Insurance
Travel to inspect the property

Not -

Doing-up costs before letting
Capital repayments on the mortgage
Management time at £50 per hour to manage the property
Your winter jumpers or your cat's vets' bills

And if you're on a residential mortgage, you should also let your provider know that the property is now BTL

Thanks for replying @loveisagirlnameddaisy!

Sorry I think I’m being a bit thick as I don’t quite understand what you mean I’m completely new to being a landlord and not very financially savvy generally tbh. I just need to put my dd to bed now so will be back in a little while!

Sorry just saw the other posts - I got consent to let from my mortgage provider until October this year then it will change to a buy to let

Gas safety check. Cost of inventory by letting agents, mileage at 45p mile to visit it if needed. Any repairs and renewals. Cost of using a professional to do tax return if you choose to use one.

Oh I can deduct cost of an accountant! I’ll probably do that then

Remember you deduct full cost of their fee but only get the benefit of the tax paid so still going to cost you more than you save. The online self assessment tool is straight forward, have a go. See what pops out. Don't press submit yet though until you're sure 😊

@Dreamtopia

Oh I can deduct cost of an accountant! I’ll probably do that then

Accountant is a good idea if you're a total novice.

I'll try and explain a little better.... On your tax return, there will be a space for entering the annual gross rental income (£575 x 12). There will also be a space for entering all your expenses which are categorised e.g. agents fees, maintenance, insurances etc etc.

These are known as deductible expenses and you can offset them against your gross rental income. This leaves you with your net rental income which is then taxed at whatever rate you pay - in your case 20% (but only just as you get £12,500 tax free and the remainder is taxed at 20%).

Before 2016, mortgage interest was another one of those tick boxes, but new legislation ruled that mortgage interest on BTL was no longer fully deductible. 20% tax payers were still ok, but 40% tax payers weren't. So the way the self assessment has changed is that it asks you to declare your mortgage interest seprarately, taxes you on your whole net rental income first and then applies a 20% rebate for the mortgage interest part. So higher rate tax payers lose out, while 20% rate tax payers effectively stay the same.

I only mention this to make you aware when you are completing your tax return as it's not as simple as just adding all your costs together and subtracting them from your rental income.

@loveisagirlnameddaisy thank you so much for taking the time to explain that so clearly, I understand now (and thanks to everyone who replied). I’ll attempt the tax return tomorrow when I’m less tired and might still use an accountant this once until I get the hang of it myself.

That's ok. It sounds daunting but SA online is actually pretty straightforward.