Buy-to-let tax - pay less property tax

Any landlord letting property will be focused at this time of year of completing their self assessment tax return. They will also be no doubt keen to minimize their tax liability.

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One way they can do this is to ensure that they claim all the expenses incurred in running their letting business from home.

Home office use

The HMRC apply the 'wholly and exclusively' rule when assessing whether an expense is a legitimate expense that can be claimed in the running of a landlords letting business.

This means when a landlord uses part of their home in running their business, they can claim the associated costs if the business has the sole use of that part of the landlords home. For instance if a landlord uses a bedroom as a home office or even a dining room table exclusively for business purposes. A landlord will not have to have separate bills relating to their letting business as clearly this would be impractical for a domestic arrangement. Instead they need to apply the principle of apportionment in calculating the business costs.

Claiming for minor business use

Tax inspectors are told not to question claims for minor uses which cost less than £2 per week. A minor use would cover the use of a kitchen table to do accounts for a couple of hours a week. Therefore a landlord should include a minimum claim of up to £104 a year minor business use expense because the HMRC won't question the deduction and will not need to see bills or receipts.


Major business use

Where a landlord runs a larger letting business that may include using a dedicated room in their home as an office, then landlords need to make sure that their claim is consistent with the size of their letting business if they want to avoid a tax inquiry by the HMRC. This is because the HMRC keeps template accounts for every type of business by comparing accounts and tax returns. This data shows what percentage a landlords turnover your general costs should be and that breaks down into how much as a percentage of turnover may be spent on travel, telephone, stationary, etc.

A landlord can claim two basic sorts of business cost. FIXED COSTS (costs that stay the same over a given period) and RUNNING COSTS (vary according to circumstances)

FIXED COSTS: insurance, council tax, mortgage interest, rent, repairs and renewals (exterior and rooms used for business)
RUNNING COSTS: cleaning, heat light power, telephone & internet, metered water charge

Apportioning the costs

Apportionment often plays a big part in claiming business expenses. The factors taken into account include:

1.Area of the office: Percentage floor area of a landlords home eg bedroom equating to 10%
2.Time: How many hours is room used for business purposes eg 2 hours a day
3.Useage: What proportion does the business consume of any measurable supplies eg this is frequently calculated by combing categories 1 & 2. For example dining room used comprising 15% of floor area used for 2 hours a day. Or bedroom equating to 10% of floor area used specifically for office.

Significant expenses for professional landlords

Landlords should therefore think carefully about claiming all the expenses incurred in running their letting business. For many larger and professional landlords their are significant expenses that they can claim for when running their letting business from home. They should always make sure that they can evidence any claim made in case the HMRC hits them with a tax inquiry.