You have just completed your first buy-to-let property purchase and there are a lot of expenses to meet before the property can actually be let. What do the tax rules allow you to deduct from the rental income when it does start to flow?

To start with you need to sort your expenses into one-off costs such as those connected with buying the property known as capital costs, and other expenses that are likely to be repeated as tenants change, which are classified as revenue costs. The capital costs can’t normally be deducted from rents received but the revenue costs can.

Some capital expenses are, however, specifically allowed. If you install cavity wall or loft insulation in your property this is a one-off capital cost but you can deduct the expense, capped at £1,500, if it was incurred after 5 April 2004.

The expenses connected with renovating a property to bring it into a habitable condition are capital costs so are not deductible. However, if the property is a flat located over business premises to be let for a ‘modest amount’ the renovation costs may qualify for a special ‘flats over shops’ capital allowance. The conditions for this tax relief are strict so ask us for further details if you think your property may qualify.

The Tax Inspector may query hefty repair and maintenance costs incurred before letting began. To get a deduction for these costs you need to show that the property was lettable before the sprucing-up began. (Whether it was lettable at a rent acceptable to you is another matter entirely!)

Revenue expenses should be deducted from the rents received for the period in which the cost was incurred. But pre-letting, such as advertising or repairs, can be deducted from the rents you receive in the first tax year if two conditions are met. The expenses must be classified as revenue costs (rather than capital) and they must have been incurred within seven years of the date on which you first let the property.