Q & A: We have just bought a property – what expenses are tax deductible?

Capital Gains Tax » July 2, 2021

Each week we receive numerous enquiries from clients which are usually quite quick to answer.  Over the coming weeks, we will be publishing some of the questions received and our answers to them.  Please note we have changed some parts of the questions to protect our client’s information.

Question:

We have just bought our first investment property which we will be renting out. Can you let us know what expenses we can claim?

Answer:

You will have two taxes to consider regarding an investment property – income tax and capital gains tax.  For each of these taxes, there are categories of expenses: capital and revenue.  Each of these expenses will lower your final tax liability. 

Revenue expenses are expenses that are incurred wholly and exclusively for business purposes.  These are taken as a deduction from rental income to arrive at your taxable rent figure.  Some examples of allowable expenses you can claim are: 

  • landlord insurance
  • wages of gardeners and cleaners
  • letting agents’ fees 
  • legal fees 
  • accountant’s fees
  • ground rents 
  • service charges 
  • advertising for new tenants
  • replacement of assets such as white goods

Mortgage interest is now claimed as a tax credit at the end of the tax computation.  This means you first work out your net profit.  Then you apply the rate of tax (20%/40%/45%) and then deduct 20% of the total mortgage interest costs from the tax liability.  

Capital expenses are expenses that are (somewhat obviously) capital in nature.  These include expenses which improve the value of the property and are still in place when the property is sold. An example of capital expenditure would be an extension or a loft conversion.  They are usually large expenses and improve the overall value of the home. These are referred to as enhancement expenditure costs in the capital gains tax computation. When you sell the property these costs can be deducted from the gain. 

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