27 May Claiming tax relief on maintenance of buy-to-let property
As a follow up to our Buy-to-Let Property Investment Update here we look at how landlords can still claim for maintenance despite the Wear & Tear Allowance being abolished from April 2016. If you own a buy-to-let property it is more important than ever to be able to claim the maximum legitimate expenses against your rental income. Here we explain the reason why.
Life after the Wear & Tear Allowance
The wear & tear allowance was an optional (but 100% legitimate available allowance) for landlords to claim tax relief. Ten percent of rental income could be claimed as a “maintenance” cost, even if no physical expenses were incurred in the year.
Effectively, this means that you were only getting taxed on 90% of your rental income, less other deductible expenses, which, could also include actual maintenance and repair costs on top.
What now – how can you claim maintenance costs?
All is not completely lost as it is still possible to claim actual costs for maintaining the property.
This could include minor repairs, decoration and costs of general maintenance. The difference is that now the costs have to be incurred, where as before 10% could be claimed regardless of putting your hand in your pocket.
Anything that is constructional, or where is cost is incurred for something that isn’t being “replaced” or “renewed” could have different tax treatment, so it is always best to seek advice from your accountant as rules vary.
Why tax planning on buy-to-let is so important
Of course, tax planning is always advisable if you want to keep your tax bill to a minimum.
With new legislation coming into force from April 2017, restricting the amount of available tax relief on mortgage interest, it means landlords need to pay even more attention to how they can minimise their tax on rental profits.
Our Buy-to-Let Property Investment Update explains more about the changes that will affect all landlords paying higher rate tax.