Understanding what makes an expense allowable
To qualify as an allowable expense, a cost must be incurred wholly and exclusively for the purpose of renting out the property. In other words, it must arise only as a result of letting the property and should not include any element of personal use or unrelated business activities.
Expenses that are partly personal and partly business must be reasonably apportioned. For example, if a mobile phone is used partly for contacting tenants and partly for personal calls, only the business portion of the cost can be claimed. If equipment or tools are used in the landlord’s own home as well as in the rental property, then only a proportion of the cost can be claimed as an allowable expense.
These expenses are included in the Self Assessment tax return, under the property income section. Rental income and allowable expenses are declared, and tax is calculated on the resulting rental profit. The more accurately expenses are recorded and justified, the lower the taxable profit, and the smaller the tax bill.
Types of expenses landlords can claim
There is a broad range of expenses landlords can claim as long as they meet the wholly and exclusively rule. These expenses cover everything from day-to-day maintenance to professional services.
Maintenance and repairs
One of the most common categories of allowable expenses is maintenance and repair work. These are essential to keep the property in a rentable condition and to respond to tenant requests when problems occur. Examples include fixing broken boilers, repairing a leaking roof, replacing broken tiles, fixing faulty wiring, and replacing damaged doors or windows.
It is important to note that these expenses must be repairs or replacements of existing items. Installing something new or improving what was there previously can be classed as an improvement and not a repair. For instance, if a basic electric shower is replaced with a more expensive power shower, only the cost of a like-for-like replacement would be allowed. The additional cost is considered a capital improvement and is not deductible from rental income.
Ground rents and service charges
Where the property is leasehold, the landlord may have to pay ground rent and regular service charges. These are paid to the freeholder or property management company and cover the upkeep of communal areas or the structure of the building. These payments are allowable expenses because they are necessary for the ongoing ability to let the property.
Service charges can include lift maintenance, lighting for communal stairways, cleaning of shared areas, garden upkeep in communal spaces, and general building insurance. All of these can be deducted from rental income.
Decorating and preparing the property
It is normal for landlords to refresh the appearance of the property between tenancies. Repainting walls, fixing cosmetic damage, or replacing worn-out carpets are all allowable expenses. The aim is to maintain the property in a good condition for future tenants, not to enhance or upgrade it beyond what was previously there.
If the decoration involves significantly improving the property or adding new features, then it may not qualify. Painting a room in neutral colours to prepare it for letting is an allowable expense, but adding high-end fittings or making decorative upgrades that increase the value of the property might not be.
Insurance costs
Landlords often take out insurance policies that cover the building, contents, and liability in case of injury or damage. These premiums are deductible from rental income. Typical policies include buildings insurance to cover structural damage, contents insurance for furnished lets, and public liability insurance to cover claims by tenants or visitors.
It is essential that the insurance policy specifically relates to the rental property. If the property is partly owner-occupied, then only the rental portion of the insurance cost is claimable.
Utility bills and council tax
In many rental situations, especially where the tenancy includes bills or in houses in multiple occupation (HMOs), landlords are responsible for paying utilities such as gas, electricity, water, and council tax. These are allowable expenses provided they are paid by the landlord rather than the tenant.
If the tenant pays for these utilities directly, the landlord cannot claim them. Where the rent is inclusive of bills, the landlord can deduct the cost of those bills as allowable expenses. Keeping copies of invoices and statements is essential for evidence.
Cleaning and gardening
End-of-tenancy cleaning, regular gardening, and cleaning of communal areas are all valid expenses that landlords can claim. Hiring a professional cleaning service to prepare the property for new tenants, or employing a gardener to maintain the outdoor spaces, is common practice.
Even minor cleaning supplies and equipment purchased specifically for the rental property may qualify as deductible expenses, as long as they are used wholly for the purposes of letting the property.
Letting and property management fees
Many landlords choose to use letting agents or property managers to handle the marketing of the property, vetting tenants, collecting rent, and organising repairs. These services come with fees, and they are fully deductible as allowable expenses.
Letting agent fees might include tenancy set-up charges, advertising costs, tenant referencing, and drawing up tenancy agreements. Property management fees are usually a percentage of the monthly rent and cover the agent’s services during the tenancy.
Legal and professional fees
Legal fees that relate to the day-to-day operation of the rental property can be claimed. These include costs for drawing up short-term tenancy agreements, seeking legal advice on letting regulations, or recovering unpaid rent through court proceedings.
Longer-term legal arrangements or costs related to purchasing the property itself are not allowable. However, where legal support is necessary to manage the rental arrangement, such as eviction processes or disputes, the fees are deductible.
Accountants’ fees for preparing rental accounts or filing the Self Assessment tax return can also be claimed, provided the fees relate specifically to rental income and not to other personal income sources.
Advertising and communication costs
Advertising the property to find new tenants is an essential part of the letting process. Costs associated with placing advertisements on property websites, in newspapers, or on social media platforms can all be claimed as allowable expenses.
Communication costs such as phone calls made to tenants, contractors, or agents also qualify. The portion of your mobile or landline bill that relates directly to rental activities can be claimed. Buying stationery, envelopes, or printer ink for rental-related correspondence is also valid.
Vehicle and travel expenses
Travel to and from the rental property can be claimed, as long as the journey is made wholly and exclusively for rental business purposes. This includes trips to inspect the property, meet with tenants or tradespeople, or visit letting agents.
You can claim either the actual cost of travel (petrol, insurance, maintenance) or use the HMRC-approved mileage rate. If you use your vehicle for both rental and personal use, you must only claim the rental-related portion.
For public transport, taxi fares, or parking fees incurred during business-related travel, the cost is also allowable. Fines or penalties such as speeding tickets are not deductible.
Disposal of old items
When landlords remove worn-out or damaged furniture, white goods, or other fittings, the cost of disposal may be claimed. This includes hiring a skip, paying the council for collection, or employing a removal service. These costs must relate directly to the upkeep or safety of the rental property.
Disposing of items as part of a larger renovation or improvement project might not qualify if the work is capital in nature, but removal in preparation for a new tenancy typically falls under allowable revenue expenditure.
Replacing domestic items
Although landlords cannot claim the cost of initially furnishing a property, they may be able to benefit from Replacement Domestic Items relief. This applies when a furnished or part-furnished property requires a worn-out item to be replaced.
The relief covers items like beds, sofas, curtains, white goods, and other household items. However, the replacement must be of a similar standard to the item being replaced. If an item is replaced with a superior version, only the cost equivalent to a like-for-like replacement can be claimed. To qualify for this relief, the landlord must have provided the item originally, and the replaced item must no longer be usable. It must be a replacement, not an addition.
Disallowed and Limited Expenses
We examined the wide variety of costs landlords can claim as allowable expenses. These can significantly reduce the amount of tax paid on rental income. However, not every cost associated with running a rental property qualifies for tax relief.
Understanding which expenses cannot be claimed, or which are only partly deductible, is essential. Some costs may seem like they should qualify, but HMRC has clear guidelines about what is permitted. This outlines those non-allowable expenses, clarifies the distinction between repairs and improvements, and explains the impact of recent changes in tax rules for landlords, including finance cost restrictions and Replacement Domestic Items relief.
Costs that are not allowable against rental income
Although landlords incur a wide range of costs in the course of letting out property, not all are permitted as deductions when calculating taxable profits. These costs, even if related to the property in some way, do not qualify under HMRC rules if they fail the wholly and exclusively test.
Mortgage capital repayments
The most common cost that landlords incorrectly assume is deductible is the capital portion of mortgage repayments. Mortgage repayments are typically made up of two parts: the interest and the capital repayment. While the interest portion used to be deductible from rental income, the capital portion never has been.
Capital repayments are considered as a way of building ownership in the asset, and as such, they are not a business expense. Only interest on loans used to purchase, improve, or repair the property was once deductible, but this changed due to new legislation discussed below.
Restriction on finance cost deductions
Prior to April 2020, landlords were able to deduct the entire amount of mortgage interest and other finance costs such as loan arrangement fees from their rental income. However, the government introduced a phased restriction over several years, and from 2020 onwards, finance costs can no longer be deducted directly.
Instead, landlords now receive a basic rate tax credit equal to 20 percent of their finance costs. This affects higher and additional rate taxpayers the most, as they cannot offset finance costs at their marginal rate of tax.
The restricted finance costs include:
- Mortgage interest
- Interest on loans taken out for furnishing or improving the property
- Fees incurred when taking out or repaying a mortgage or loan
This change significantly impacts the tax liabilities of landlords who rely on borrowing to finance their rental business, especially those with large mortgages on multiple properties.
Improvements versus repairs
Another area that commonly causes confusion is the difference between maintenance or repairs and capital improvements. This distinction is crucial because only maintenance and repairs qualify as allowable expenses for income tax purposes.
Repairs and maintenance
Work that restores an asset to its original condition or replaces it with something similar qualifies as a repair. This includes mending leaks, replacing broken fittings with similar ones, repainting, or repointing walls.
These repairs are necessary to keep the property in a habitable condition and are considered allowable revenue expenses. They do not increase the value of the property but simply restore it to its previous state.
Improvements and upgrades
If a landlord adds something new or enhances the property’s functionality or value, it is likely to be considered a capital improvement. These are not deductible from rental income.
Examples of improvements include:
- Adding an extension or conservatory
- Installing a new kitchen where there was none before
- Upgrading from standard to luxury fittings
- Converting a loft or basement into living space
Although these costs are not deductible against rental income, they may be used to reduce capital gains tax if the property is sold in the future. For this reason, it is still important to retain records of such expenses.
Expenses with partial business use
Some costs serve both personal and rental purposes. When this happens, only the business portion can be claimed as an allowable expense. HMRC requires that expenses be proportioned accurately, and landlords must keep supporting evidence to justify their claims.
Shared mobile phone or internet bills
If a landlord uses their personal mobile phone to speak with tenants, letting agents, or tradespeople, they can claim a percentage of the bill based on estimated business usage. A similar principle applies to broadband or home internet bills, where part of the use relates to managing rental affairs.
Without evidence or itemised records, landlords should be cautious when apportioning these expenses, as HMRC may disallow the deduction if the justification is not reasonable.
Vehicle and travel costs
Travel expenses between a landlord’s home and their rental property are allowable only if they are made for rental-related purposes. For example, driving to inspect a property, meet a letting agent, or supervise repair work would qualify. Personal journeys or dual-purpose trips must be carefully divided, and only the portion connected to rental activity can be claimed.
Landlords can choose to use actual running costs, apportioned by business use, or claim the flat mileage rate set by HMRC. Whichever method is used, proper records such as mileage logs and receipts should be maintained.
Claiming legal and professional fees
Legal and professional fees can be deducted if they relate directly to the rental business. However, not all legal costs qualify, and the nature of the service provided determines whether or not it is an allowable expense.
Allowable legal fees
Legal expenses are permitted where they involve:
- Drafting short-term tenancy agreements (less than one year)
- Renewing annual tenancy agreements
- Recovering rent arrears or dealing with tenant disputes
- Serving eviction notices or pursuing legal possession of the property
Such fees are directly related to the rental process and are therefore deductible from rental income.
Non-allowable legal fees
Legal fees connected to the purchase, sale, or transfer of a property are not allowable against rental income. These are considered capital costs and should be accounted for when calculating capital gains tax upon the disposal of the property.
Solicitor fees incurred during the initial purchase of a buy-to-let property or refinancing arrangements would fall into this non-deductible category.
Replacement Domestic Items relief
While landlords can’t claim the cost of furnishing a property for the first time, there is a specific form of tax relief available when replacing domestic items in a furnished or part-furnished rental property.
This relief allows landlords to claim a deduction for the cost of replacing household items provided for the tenant’s use, as long as the replacement is not of a higher quality or value than the original.
Items that qualify for replacement relief
Replacement Domestic Items relief applies to:
- Sofas and armchairs
- Beds and mattresses
- Curtains and carpets
- White goods such as washing machines, fridges, ovens
- Kitchenware including cutlery, crockery, pots, and pans
This relief only applies to items provided as part of the tenancy and used by the tenant. Items used solely by the landlord or in communal areas of owner-occupied buildings are not eligible.
Limits and restrictions
To qualify, the landlord must be replacing an existing item on a like-for-like basis. If the replacement is superior, only the value of a comparable replacement may be claimed. For example, if an old fridge worth £300 is replaced with a deluxe version costing £500, the landlord may only claim £300.
Additionally, the original item must no longer be in use. Replacing functioning items purely for cosmetic reasons or to upgrade the property does not qualify.
Keeping accurate records
Whether claiming allowable expenses or replacement relief, landlords are advised to keep detailed records of all transactions. This includes:
- Invoices and receipts
- Bank statements showing payments
- Mileage logs for travel claims
- Contracts or tenancy agreements
- Notes on how expenses are apportioned between personal and rental use
Good record keeping is not only essential for completing the Self Assessment tax return but also acts as evidence in the event of a review or audit by HMRC. Landlords are required to retain financial records for at least five years after the 31 January submission deadline of the relevant tax year.
Avoiding common mistakes
Many landlords either overclaim or underclaim allowable expenses because they are unsure about the rules or rely on informal estimates. Some of the most common errors include:
- Claiming capital improvements as repairs
- Including personal use items in full
- Deducting finance costs instead of applying the tax credit
- Failing to keep evidence or invoices
- Missing out on reliefs such as Replacement Domestic Items relief
To stay compliant and maximise tax efficiency, landlords should take time to understand the rules or consult a tax adviser who specialises in property income.
The importance of understanding capital versus revenue expenditure
One of the most significant distinctions in landlord taxation is between capital expenditure and revenue expenditure. Misclassifying capital expenses as revenue can result in overclaiming and possible penalties, while failing to claim allowable revenue expenses means paying more tax than necessary.
Revenue expenses are short-term costs incurred in the normal operation of the rental business. These include repairs, maintenance, utility bills, insurance, and legal services. Capital expenditure, on the other hand, refers to long-term investments that enhance the property’s value or extend its useful life. Examples include constructing a new roof, converting a garage, or installing central heating for the first time. Only revenue expenditure can be deducted from rental income. Capital expenditure must be tracked separately and may be offset against capital gains tax in the future.
Navigating Complex Tax Issues in Property Lettings
As a landlord’s property portfolio grows or the types of rental arrangements diversify, so does the complexity of tax obligations. Different rules apply to different types of lettings, and special considerations arise when managing furnished holiday lettings, jointly owned properties, or multiple rental units.
Understanding how to stay compliant while maximising available tax reliefs requires attention to detail. We explore advanced landlord tax issues, including managing portfolios, handling tax on furnished holiday lettings, planning for capital gains tax, and staying ahead of HMRC reporting and digital requirements.
Managing multiple properties for tax purposes
When landlords own and operate more than one rental property, it’s important to manage all associated income and costs collectively. HMRC allows landlords to group their rental income and allowable expenses from multiple properties into a single calculation.
Pooled income and expenses
Landlords do not need to calculate profit and loss for each property individually. Instead, rental income and allowable expenses can be pooled across all properties within the same category. This simplifies tax reporting and allows for a more balanced approach when one property incurs more costs than another.
If one property experiences a large repair bill or void period while another generates consistent income, the overall profit is still calculated on the basis of the entire portfolio.
Exceptions for different types of lettings
The pooling approach only applies to properties within the same category. There are separate rules for:
- UK rental income versus overseas rental income
- Furnished holiday lettings versus long-term residential lettings
- Commercial property lettings
Each of these categories must be reported and calculated independently in the Self Assessment return. Mixing income or expenses between categories is not permitted.
Furnished holiday lettings and tax
Furnished holiday lettings, often referred to as FHLs, have a unique tax status. Provided they meet strict criteria, these properties can benefit from certain tax advantages not available to standard residential lets.
Qualifying criteria for FHL status
To be considered a furnished holiday letting, a property must:
- Be situated in the UK or European Economic Area
- Be let furnished and available for commercial holiday letting for at least 210 days per year
- Be actually let to the public for at least 105 days per year
- Not be let to the same person for more than 31 continuous days on more than 155 days in a tax year
If these conditions are not met, the property loses its FHL status and is treated as a regular rental property.
Benefits of FHL treatment
If a property qualifies as a furnished holiday let, landlords benefit from more generous tax rules, including:
- Ability to claim capital allowances for furniture and fixtures
- Profits counted as earnings for pension purposes
- Potential eligibility for Business Asset Disposal Relief, which reduces capital gains tax when the property is sold
Unlike standard residential properties, where landlords must use the Replacement Domestic Items relief for furnishings, FHL owners can claim capital allowances for the initial cost of buying furniture and equipment used in the property.
Jointly owned properties
Many rental properties are owned jointly by spouses, civil partners, or business partners. Understanding how to report income and claim expenses in joint ownership situations is key to staying compliant and tax-efficient.
Equal ownership and income split
By default, income from jointly owned property is split equally between the owners unless they have specified a different split with HMRC. Married couples and civil partners who own a property in unequal shares can make a formal declaration using Form 17 to ensure their share of rental income reflects their beneficial ownership.
Each owner must report their share of rental income and allowable expenses on their individual tax return. If one owner pays an expense in full, they must divide the expense in accordance with ownership shares unless the other party reimburses them.
Joint mortgages and interest claims
Interest on a joint mortgage should also be split according to ownership shares. Even if one party pays more toward the loan, for tax purposes, deductions must reflect the legal ownership structure unless alternative arrangements have been formally registered.
Keeping joint records and maintaining transparency over who paid for which expenses is important when preparing separate tax returns.
Capital gains tax planning for landlords
Selling a rental property can trigger a capital gains tax liability. This tax is payable on the profit made from the sale of the property, calculated as the difference between the selling price and the original purchase cost (adjusted for certain allowable costs).
Calculating the gain
To calculate the capital gain on a property sale, landlords must take the following into account:
- Original purchase price
- Legal and professional fees during purchase and sale
- Stamp duty paid at the time of purchase
- Capital improvements (not repairs) made to the property
- Selling costs such as estate agent fees
After deducting these amounts from the sale proceeds, the resulting figure is the capital gain.
Allowable deductions and reliefs
Landlords may reduce the capital gain through various deductions and reliefs:
- Annual capital gains tax allowance (currently £3,000 for individuals in 2025/26)
- Capital improvement costs (such as extensions or structural upgrades)
- Business Asset Disposal Relief if the property qualifies as an FHL
Each individual can use their annual allowance against total gains for the year. Married couples who own a property jointly can each use their allowance, effectively doubling the exempt amount.
Reporting and paying capital gains tax
Since April 2020, individuals who sell UK residential property must report the gain and pay any tax due within 60 days of completion. This reporting is done separately from the Self Assessment tax return and must be submitted via HMRC’s online system.
Late reporting or payment can result in penalties and interest charges, so landlords should plan ahead when selling properties.
Record keeping and digital compliance
Maintaining accurate and organised records is essential for all landlords, regardless of the size of their portfolio. With the increasing digitalisation of tax reporting, the need for reliable documentation has never been greater.
Essential records to retain
Landlords should keep the following documents for each property:
- Tenancy agreements
- Rent collection records and receipts
- Invoices for maintenance and repairs
- Legal and letting agent correspondence
- Utility bills and service charge statements
- Mortgage and loan agreements
- Proof of capital improvements
These records should be retained for at least five years after the 31 January deadline of the relevant tax year.
Making Tax Digital for Income Tax
The government’s Making Tax Digital (MTD) initiative will eventually require landlords with property income over £50,000 to keep digital records and submit quarterly updates to HMRC. The introduction of MTD for Income Tax has been delayed until 2026, but landlords should begin preparing now.
When MTD comes into effect, landlords will be required to:
- Use approved software to keep digital financial records
- Submit updates to HMRC every three months
- File a final end-of-period statement each year
By moving to digital record keeping early, landlords can ensure compliance and take advantage of features that simplify expense tracking and tax forecasting.
Using losses to reduce future tax bills
If allowable expenses exceed rental income in a given year, landlords incur a rental loss. Rather than going unused, these losses can be carried forward and offset against future profits from the same rental business.
For example, if a landlord incurs significant repair costs in one tax year that result in a net rental loss, this can be used to reduce taxable profit in subsequent years. However, losses cannot be carried back or offset against other types of income.
Carrying losses forward
Losses must be claimed in the tax return for the year in which they arise. They are then automatically carried forward and applied to future rental profits until they are fully used up. Landlords should maintain clear documentation of when and how losses occurred to support claims in later years.
Tax planning tips for landlords
Good tax planning is essential to maximising profit and staying compliant. Landlords should consider the following strategies:
- Time repairs and purchases to fall within the tax year where income is highest
- Keep digital copies of all receipts and invoices
- Ensure accurate records for all expenses, especially shared or partial-use costs
- Review ownership structures to ensure optimal income splitting
- Monitor eligibility for tax reliefs such as FHL status and Replacement Domestic Items relief
With regular changes to property tax rules, staying informed and proactive is vital. Seeking professional advice at key decision points—such as buying, renovating, or selling a property—can help avoid costly mistakes and improve long-term profitability.
Conclusion
Navigating the complexities of property taxation is a crucial part of being a responsible and financially efficient landlord. While renting out property can be a profitable venture, the many costs involved can quickly reduce profit margins if not managed carefully. Fortunately, HMRC allows landlords to deduct a wide range of legitimate business expenses from their rental income, which can substantially reduce their tax liabilities.
Understanding what qualifies as an allowable expense is the first step. Day-to-day costs such as property repairs, maintenance, letting agent fees, insurance premiums, and utility bills (where paid by the landlord) are all deductible, provided they are incurred wholly and exclusively for the rental business. Even replacement of worn-out furnishings and appliances can qualify for tax relief under Replacement Domestic Items relief, as long as the items are like-for-like.
However, there are limitations and exclusions that landlords must be aware of. Mortgage capital repayments are never deductible, and since recent rule changes, mortgage interest and finance costs now only qualify for a 20 percent tax credit rather than full deduction. Similarly, improvements that enhance a property’s value—such as extensions or conversions—do not count as allowable revenue expenses, though they may help reduce capital gains tax on sale.
Those managing multiple properties or furnished holiday lettings face additional rules. Each property type must be reported separately where required, and furnished holiday lets, if they meet the qualifying conditions, can offer more generous tax advantages. Joint owners must ensure they report their share of income and expenses correctly and in line with their ownership structure.
Effective tax planning, accurate record keeping, and a solid understanding of the distinction between revenue and capital expenses are all essential to avoid compliance issues and overpaying tax. With legislation evolving and digital reporting through Making Tax Digital on the horizon, staying organised and informed has never been more important.
By actively managing expenses, using the correct reliefs, and ensuring compliance with HMRC guidance, landlords can optimize their rental business for both tax efficiency and long-term profitability.