Property vacant? Important issues for landlords to consider
- TBA
- Sep 25, 2024
- 3 min read
Updated: Feb 25
Previously, we discussed that rental income is considered part of your personal income, meaning all profits derived from it are subject to personal income tax. This implies that when you receive income from renting out a property, it is combined with other sources of income, such as your salary or investment gains, and taxed accordingly.
However, there are ways to reduce your tax liability by deducting certain expenses that are deemed “qualified” by tax authorities. These qualified expenses can significantly lower the amount of taxable income from your rental activities.
So, which specific expenses fall under this category? Let’s take a deeper look.
1. What qualifies as a vacancy?
Throughout the rental process, many landlords experience vacancy periods for various reasons. For example, when you’re searching for new tenants by advertising the property or during the handover period when one tenant moves out and you’re preparing for the next tenant to move in.
During these times, although you might not be collecting rental income, there are often ongoing costs associated with the property, such as property management fees, utility bills, or payments to letting agents for marketing the property.
The key question is: Can these costs be considered deductible expenses for tax purposes?
The answer lies in your intentions. If the vacancy is temporary and you plan to continue renting the property—whether due to tenant turnover, refurbishments, or routine maintenance—the tax authorities will view your rental business as ongoing. In this case, these costs related to the vacancy period can be claimed as legitimate deductions, reducing your overall tax burden.
However, if you decide to stop renting out the property permanently, the expenses incurred during the vacancy may not be eligible for deduction.
2. Other possible scenarios
It’s not uncommon to find that during a vacancy period, the lack of rental income might cause your expenses to exceed your revenue for that year, potentially resulting in a financial loss. For example, if your total rental income for the year is £10,000, but you have £12,000 in allowable expenses (which could include maintenance, repairs, insurance, and property management fees), this would create a £2,000 loss. While this loss can’t be used to offset other forms of income like wages or investment returns, it can still be beneficial.
If you own multiple rental properties, and one incurs a loss while others remain profitable, the loss from one property can be used to offset the income from your other properties. This approach allows you to reduce the amount of taxable income from your overall rental portfolio, minimizing your personal income tax liability for that year.
Some professional advice from TB Accountants
Being a landlord involves navigating through a maze of often complex tax regulations and compliance requirements. Failing to understand which expenses can be deducted or how to handle losses from your rental properties can lead to costly mistakes.
To avoid any uncertainties or oversights, we highly recommend consulting with a qualified professional. An accountant or tax advisor who specialises in rental property income can ensure that you’re making the most tax-efficient decisions, while staying fully compliant with tax laws. Getting professional advice is especially important if you own multiple properties or if you’re unsure how to handle vacancies, losses, or other unique circumstances that might arise.
