Being a landlord in Stockport comes with its fair share of complexities, especially when it comes to tax regulations surrounding mortgage interest and allowable expenses. With recent changes, it's no longer as straightforward to reduce your tax bill. But don’t worry, we’re here to break it down for you in plain terms.
Mortgage Interest Relief: What’s Changed?
A few years back, landlords could deduct the entire amount of their mortgage interest from rental income. For those in higher tax brackets, this was a significant relief. However, the government has since introduced a system where, instead of directly deducting the interest, landlords now receive a basic rate tax credit of 20%.
To put it simply, if your mortgage interest amounts to £10,000, you now pay tax on the full sum but receive a 20% tax credit, giving you back £2,000. While this is better than nothing, it’s certainly not the full relief landlords used to enjoy, particularly affecting higher-rate taxpayers. As a result, some landlords are now rethinking their portfolios or adjusting their rental strategies. If you’re interested in the specifics, you can find more details in this Which? guide on landlord mortgage interest relief.
What Expenses Are Still Claimable?
Fortunately, there are still plenty of expenses you can claim to reduce your tax bill. Any costs associated with maintaining your property—like repairs, maintenance, or replacing appliances—can still be deducted. Previously, landlords could claim a 10% wear-and-tear allowance for furnished properties. This is no longer available, meaning you must now claim the actual costs of replacements, so it’s essential to keep those receipts in good order.
For a detailed breakdown of what qualifies, theHMRC guidelines on allowable expenses for landlords are a helpful resource.
The £1,000 Property Allowance
If your rental expenses are under £1,000 annually, the property allowance is a great option. You can claim a flat-rate deduction without needing to provide receipts, simplifying your tax process. However, if your costs exceed £1,000, you’ll need to itemise and claim each expense separately. A bit more paperwork, but well worth it if your expenses go beyond the £1,000 mark.
Capital vs. Revenue Expenditure
This is where things can get a bit tricky. The difference between capital and revenue expenditure is key to understanding what you can claim. Revenue expenses cover day-to-day repairs—things like fixing a broken window or repainting a room—and can be deducted in the same year.
On the other hand, capital expenditure refers to larger improvements, such as adding an extension or upgrading the heating system. These costs aren’t deducted immediately but can help reduce capital gains tax when you sell the property. If you’re unsure whether a cost is capital or revenue, Provestor’s guide on capital vs. revenue expenditure is a useful reference.
Making Tax Work for You
Even with the changes to mortgage interest relief, there are still ways to reduce your tax bill through allowable expenses. Keeping detailed records and being strategic about what you claim can make a significant difference. For a comprehensive explanation on how mortgage interest relief is calculated, the HMRC guide on tax relief changes for residential landlords provides all the details.
By staying informed and organised, you can ensure that you’re maximising your deductions and keeping more of your rental income.
