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Updated: Jan 25

Income from property can be derived from renting out land, furnished property, unfurnished property, letting out of holiday property, renting out part of the house in which the taxpayer lives, commercial properties and renting out foreign property. Each of these rental types have their own allowances that can be used against that tax years rental income to reduce the tax liability.

In this article we will be only be looking at a Landlords taxable income responsibility for unfurnished residential property. For all other Landlords responsibilities and aspects of buy-to-let then find a relevant professional to talk to.

Purchase of a property and set up prior to renting out

Allowable expenses also described as “Revenue expenses” do not include ‘capital expenditure’ - like buying a property or renovating it beyond repairs for wear and tear.

· Purchase of new property

· Enhancement expenditure on an existing asset such as a new extension, new conservatory and new central heating

· Depreciation of existing capital assets

· Legal or other costs associated with an item of capital expenditure

· Cost of renovations or repairs incurred before the property is let for the first time

This includes if you buy a property in a derelict or run-down state, and either you paid a substantially reduced price for it or it was not in a fit state for rental. Any works undertaken to put it back into a fit state for letting are unlikely to be repair works - they will be capital works as they improve the property.

Stamp Duty Land Tax

Higher rates for additional properties

You’ll usually have to pay 3% on top of SDLT rates if buying a new residential property means you’ll own more than one.

Expenses Incurred Prior to Letting

Whilst there are some restrictions, eg. capital and legal & professional fees (see Purchase of a property and set up prior to renting out), Expenses incurred within a period of 7 years before the date the rental business started are allowed to be claimed against tax.

The main condition is that the Expenses would have been allowed as a deduction if it had been incurred after the rental business started.

Pre-letting Expenses are treated as incurred on the day the rental business commenced - that is, the first letting day.

GOV.UK: Property Income Manual - Beginning and End of a Rental Business: Commencement

For detailed guidance on pre-trading expenditure see BIM46350.

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