The end of another tax year and as landlords think about their tax return they may be wondering what costs can be deducted from rental income. Costs that can be deducted are as follows:

* Financing costs

* Repairs and maintenance (but not property improvements)

* Heating and lighting (where paid by the landlord)

* Insurance

* Letting agency fees

* Advertising for tenants

* Accountancy fees

* Professional and legal fees in connection with tenancies (but not costs related to the sale or purchase of property or planning applications)

* Ground rents and service charges

* Bad debts

* Capital allowances on office or other equipment used in the course of running a property business

* Administrative expenses including wages and also the cost of phone calls, stationery, subsistence, travel and an appropriate proportion of household expenses if you run your property business from a room in your home (HMRC has detailed rules on what household expenses are allowed and what proportion is calculated.

More information can be found via these links:

• Tax on rent from residential property lettings;
• Expenses and allowances on income from property

or contact Her Majesty’s Custom and Revenue (HMRC) or seek advice from an accountant or specialist tax adviser.

Jungle Property now provides all our client landlords with an annual financial statement to help with their tax assessment.

It is essential that your rented property has an inventory.

The vast majority of tenancies will now take a deposit which will be protected under one of the government authorised tenancy deposit schemes.

If there is any dispute at the end of the tenancy regarding the deductions which the landlord wishes to make from the deposit money, his chances of sucess at arbitration will be low if there is no agreed inventory showing in detail the condition of the property at the start of the tenancy.
Unfurnished properties

Note that an inventory (or as it is sometimes called, a schedule of condition) should not just be done for furnished properties.

Even with an unfurnished property you will want to keep a record of the condition of the walls, doors, carpets etc, not to mention curtains and any kichen white or other goods which may be included as part of the let. ALL rented properties should have a proper inventory prepared, and ideally the tenants should not be allowed into occupation until it has been checked with them and they have signed to confirm that it is agreed.
Inventory clerks

As arbitrators often regard the evidence of landlords who prepare their own inventories as biased, particuarly on the subject of fair wear and tear, we strongly recommend that you use an independent inventory clerk.

Note also that if your tenant fails or refuses to sign the inventory form as agreed at the start of the tenancy, then an inventory prepared by the landlord will be given little weight by an adjudicator if there is ever any dispute about deductions from the deposit.

For this reason it is better for landlords to use an inventory clerk rather than prepare their own inventory forms.

Other reasons for using an inventory clerk:

• Preparing a proper inventory is time consuming if you do it properly, and takes even longer if it is not something you do very often (for example if you only own one or two properties). Professional inventory clerks who do this work every day, will do a quicker and better job
• You can offset the inventory clerk’s fees against tax
• You can also charge the cost of either the check in work or the check out work (but not both) to the tenant
• If the question of deductions is ever looked at by an arbitrator, the evidence of the inventory clerk will often be given more weight as he will be seen as impartial
• If the tenant refuses to sign the inventory as agreed at the start of the tenancy, the inventory clerk’s evidence will normally be accepted by an adjudicator as independent evidence of the condition of the property at the start of the tenancy.

Use an inventory clerk who is accreddited by a professional body such as Association of Professional Inventory Providers

All properties let and managed through Jungle Property have a detailed Inventory and Schedule of Condition report compiled by an independent accredited inventory clerk.

Just who is responsible for pests in the property during the tenancy?

If the pest problem is caused by disrepair (e.g. holes in floor permitting mice to enter property) then it is the landlord’s responsibility. If the pest problem is caused by the actions of the tenant after the start of the tenancy it is the tenant’s responsibility unless there is some alternative provision in the tenancy agreement.

Where pests are present at the start of the tenancy the issue is more complex. A landlord does not ordinarily give a warranty to a tenant that the property is pest free and habitable at the outset of the tenancy. Therefore, it is debatable whether a landlord is necessarily liable for the presence of pests in a property at the start of a tenancy. However, where a property is let furnished a warranty is given that the property is pest-free at the outset of the tenancy (although no warranty is given that it will stay that way) and where a tenant discovers that a furnished property, as a whole, is infested they may be able to declare the tenancy repudiated, move out, and sue for damages following the principles laid down in Smith v Marrable. However, in this case the landlord was clearly refusing to deal with the issue and so it must be doubted whether the same actions could be taken if the landlord was unaware of the infestation and then took all reasonable steps to deal with it on it being brought to his attention. It should also be noted that in this case the whole property was infested with rats and so the fact that bed bugs were present in a bed would not necessarily be sufficient to allow the tenant to claim repudiation.

If the property is an HMO then the Management of Houses in Multiple Occupation Regulations will apply. These create a prosecutable offence if the property is not clean at start of tenancy and it may be the case that a Court would hold that the definition of clean should include freedom from pests. However, this has not been tested to our knowledge.

Where tenants import fleas of bugs into a property then the Courts have held that this is a breach of the tenant’s implied obligation to use the property in a tenant-like manner.

In short, all landlords should do their utmost to ensure that there are no pests in a property at the outset of a tenancy. Failure to do so might involve serious consequences.

More on this..

Shelter’s view on the matter here

Law firm Painsmith’s view on the matter here