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Being a landlord used to be the preserve of the wealthy few. However, the last few years have seen many, many thousands of people investing in a second property and renting that flat or house out to tenants - the ‘Buy to Let’ phenomenon!
But once you have bought your property with the intention of letting it, there will always be times when it is empty and while there may be no rent coming in there are always those expenses connected with the property. So it’s doubly annoying that the tax Inspector has a nasty habit of trying to disallow those expenses incurred while your property is vacant – it really does pay to know the rules in this instance, so what are they?
Before you first let your property
Many people assume that expenses incurred prior to first letting out your property are not deductible, after all your ‘rental business’ hasn’t actually started. Not so! In fact you can claim relief for these pre-letting expenses, providing a) they are the type of expenses that would normally qualify, and b) the property is in a fit state to be rented out (subject to furnishing and cleaning and setting up a tenancy agreement). Just by way of example the expenses that would normally qualify include loan interest, advertising, telephone and travel expenses in finding and showing round tenants etc. Incredible as it may seem you can claim relief on qualifying expenses incurred in the seven years before renting out the property providing you are actively and genuinely trying to find tenants. In practice most expenses will be in the weeks or months before that first letting.
You can’t get relief however on money spent making a property fit to be let out, e.g. re-wiring or installing central heating. (That type of expenditure would be an enhancement – deductible against any future capital gain on selling the property – so keep the details and receipts!) Between lettings: It’s great if you’re lucky enough for one tenant to leave on Saturday and the new one move in on Sunday. In reality that doesn’t happen all the time and you may have a few weeks or months between tenants, (often called a ‘void period’), and the Inspector often likes to look at this period and try and disallow expenses, especially if there is a lengthy gap between lettings.
However if you are trying to re-let the property then your expenses during this time should still be tax deductible. And how long can that gap between tenants be? Well, up to three years is the generally accepted rule. This is important because not only can you continue to get relief for the expenses incurred, you should also be treated as carrying on the same rental business as before, so any losses from earlier years can be carried forward and set against future rental profits. (If you actually stopped renting or trying to rent your property, say you occupied yourself for a while, then any losses brought forward would be forfeit).
The types of expenses you can claim include mortgage interest, management fees, gas and electricity safety inspections and certificates, advertising costs, telephone and travel and even use of a room in you main home as an office for running your rental business.
And finally…
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