Landlord Expenses in the UK: Allowable Expenses You Can Claim Against Rental Income

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If you rent out a property in the UK, you will probably have a number of costs throughout the year, from repairs and insurance to letting agent fees, accountancy fees and mortgage costs. The important thing to understand is that not every cost you pay as a landlord can simply be deducted from your rental income when calculating your taxable profit.

HMRC allows landlords to deduct certain expenses where they are incurred for the purposes of their property rental business, but there are also important rules covering improvements, capital expenditure, mortgage interest and replacement items. Understanding these rules can help you calculate your rental profit correctly and avoid either claiming expenses that HMRC does not allow or missing legitimate deductions.

Landlord allowable expenses

Landlord allowable expenses are costs that you can normally deduct from your rental income when working out the taxable profit from your property business. For an individual landlord, the general rule is that the expense must be incurred wholly and exclusively for the property rental business. HMRC gives examples including repairs, insurance, letting agent fees, certain legal costs, accountant’s fees, utilities paid by the landlord, Council Tax, ground rent, service charges and advertising.

For example, if you receive £15,000 of rental income during the tax year and have £4,000 of allowable expenses, your starting point for calculating the taxable property profit would be £11,000, before considering any other relevant adjustments or special rules.

Common landlord expenses that may be allowable include:

• letting agent and property management fees
• landlord buildings and contents insurance
• repairs and maintenance
• gas, electricity and water bills paid by the landlord
• Council Tax where the landlord is responsible for it
• ground rent and service charges
• cleaning and gardening costs
• advertising the property for new tenants
• certain legal and professional fees
• accountant’s fees relating to the property business
• reasonable business-related telephone, stationery and similar costs
• some travel and vehicle costs relating to the property business.

The key point is that the cost must relate to the rental business rather than your personal life. If an expense has both a business and private element, you generally need to identify and claim only the business-related part.

For example, if you use your personal telephone to deal with tenants, letting agents and contractors, you cannot simply claim your entire phone bill. You would need to identify the part that relates to the property business.

What landlord expenses can I claim for repairs?

Repairs are one of the most common expenses for landlords. Generally, the cost of maintaining or restoring a property to its original condition can be an allowable revenue expense. Examples include repairing a leaking pipe, replacing broken roof tiles, repairing windows, treating damp, repainting between tenants and repairing a broken boiler.

The distinction between a repair and an improvement is important. If you replace something with a modern equivalent and the property is essentially restored to the same standard, the cost can often still be treated as a repair even if modern materials or technology mean the replacement is slightly better than the original.

However, if you substantially improve or alter the property, the cost will generally be capital expenditure rather than an ordinary deductible rental expense.

For example, repairing a damaged bathroom would normally be different from completely converting the property by adding a new bathroom where one did not previously exist.

Can I claim accountant’s fees?

Accountancy fees relating to your property business can generally be claimed as an allowable expense. For example, if you pay an accountant to prepare your property income figures or deal with the property section of your Self Assessment tax return, the relevant cost can normally be deducted when calculating your property business profit.

However, if an accountant’s fee covers both your rental business and unrelated personal tax or financial matters, you should not automatically treat the entire invoice as a property business expense. The cost may need to be divided between the different purposes.

Are your rental property expenses tax deductible?

Rental property expenses covers a wide range of costs, but the most important question is always what the money was spent on and why it was spent.

HMRC’s basic rule is that expenses can be deducted when they are incurred wholly and exclusively for the purposes of the property rental business.

One of the easiest ways for a landlord to make a mistake is to assume that because an expense was paid for the rental property, it must automatically be deductible. This is not the case.

Are improvements tax deductible for landlords?

Usually, no. The cost of improving or substantially altering a property is generally capital expenditure and cannot simply be deducted from rental income as an ordinary expense. HMRC gives examples such as building an extension, adding something that was not previously there or upgrading an existing property beyond a repair.

For example, if a landlord replaces a damaged kitchen with a broadly equivalent modern kitchen, the cost may be treated differently from the cost of substantially upgrading the property by installing a much higher specification kitchen and changing the layout.

This is why landlords should keep invoices for capital expenditure even when the cost cannot be deducted from rental income. Capital costs can sometimes be relevant when calculating Capital Gains Tax when the property is eventually sold.

Can landlords claim for replacing furniture and appliances?

There is a specific relief for replacing certain domestic items in a residential property.

This can cover items such as beds, sofas, free-standing furniture, curtains, carpets, fridges, washing machines and other household appliances, provided the relevant conditions are met. The relief generally applies when an existing domestic item used by the tenant is replaced rather than when the landlord initially buys the item for the property.

If the replacement is substantially better than the original item, the deduction can be restricted to the cost of a reasonable modern equivalent rather than the full cost of the upgraded item.

For example, if a £400 sofa is replaced with a £550 sofa bed, the full £550 would not necessarily be deductible. The calculation may be based on the cost of a reasonable equivalent replacement rather than the improvement.

What records should landlords keep?

Good records are extremely important because landlords need to be able to support the figures included on their tax return.

Keep invoices, receipts, bank statements, letting agent statements, mortgage statements, insurance documents and other evidence showing what you paid and why you paid it.

It is particularly useful to record expenses throughout the year rather than trying to reconstruct everything immediately before submitting your Self Assessment tax return.

If you own more than one property, keeping separate records for each property can also make it much easier to understand your overall property business and investigate individual costs when necessary.

What is the SA105 form?

Landlords who report property income through Self Assessment generally use the property pages, known as the SA105, to report their UK property income and expenses.

If you are unsure which expenses belong on your property tax return, it is worth understanding how the SA105 works before submitting your figures. You can also read our guide explaining What Is SA105 Form? UK Property Income and Self Assessment Explained for more information.

What about Making Tax Digital for landlords?

The way landlords keep and report their rental income is becoming increasingly important because of the expansion of Making Tax Digital for Income Tax.

If you have rental income and are affected by the new rules, keeping accurate digital records of your income and expenses will become an important part of managing your property business.

You can read our guide on MTD for rental income to understand how the rules are developing and what landlords may need to prepare for.

Landlord mortgage interest tax relief

Mortgage interest is one of the areas that causes the most confusion for individual residential landlords.

For individual landlords paying Income Tax, mortgage interest on residential property is no longer deducted from rental income in the same way as ordinary allowable expenses. Since the rules were fully phased in from the 2020/21 tax year, qualifying residential finance costs are instead generally dealt with through a basic-rate tax reduction.

This means that you should not simply take your annual mortgage payment and deduct it from your rental income.

The capital repayment element of the mortgage is not an allowable rental expense, and for an individual residential landlord the interest is subject to the finance cost restriction. HMRC explains that the relief is given through a reduction in the Income Tax liability rather than by deducting the interest when calculating the property profit.

For example, imagine a landlord receives £18,000 in rent and has £4,000 of ordinary allowable property expenses. The mortgage payments cannot simply be deducted in full from the £18,000. The mortgage interest needs to be considered under the separate finance cost rules.

The rules can be different where the property is commercial or where the property is owned through a company. A company paying Corporation Tax can generally deduct interest on property loans under the relevant Corporation Tax rules, so landlords should not automatically apply the individual residential landlord rules to a limited company.

Can I claim the full mortgage payment as an expense?

No. A mortgage payment normally contains both capital and interest, and the full monthly payment is not an allowable deduction from residential rental income for an individual landlord.

This is one reason why landlords should keep their mortgage statements rather than simply recording the total amount paid to the mortgage lender during the year.

The interest and other qualifying finance costs need to be identified separately and dealt with under the appropriate tax rules.

What is the £1,000 property allowance?

The property allowance is an alternative to claiming actual property expenses. It provides an exemption of up to £1,000 a year for qualifying property income.

However, you cannot normally claim the £1,000 property allowance and also deduct your actual allowable expenses for the same income.

This means landlords should compare the two approaches rather than automatically assuming that the £1,000 allowance is always better.

For example, if your gross property income is £8,000 and your actual allowable expenses are £3,500, claiming actual expenses could be more relevant than using the £1,000 property allowance. On the other hand, where expenses are very low, the property allowance may be worth considering.

You can read our separate guide to the Property Allowance UK rules for more information.

How do I calculate my taxable rental profit?

For a straightforward individual property business, the basic calculation is to add together your rental income and then deduct the allowable expenses that are relevant to the property business.

For example:

Rental income: £18,000
Repairs: £1,200
Insurance: £350
Letting agent fees: £1,080
Accountant’s fees: £300
Other allowable expenses: £270

Property profit before finance cost relief: £14,800

The mortgage interest would then need to be dealt with under the residential finance cost rules rather than simply deducted from the £18,000 rental income.

If you have several UK rental properties, HMRC generally treats them as one UK property business when calculating the overall property profit or loss, subject to the rules that apply to particular types of property business.

Conclusion

Understanding landlord expenses is important because your tax is generally based on the profit from your property business rather than simply the amount of rent that enters your bank account.

Repairs, insurance, letting agent fees, certain professional fees, utilities and other genuine costs of running the rental property can often be claimed, while improvements and other capital costs normally cannot be deducted as ordinary rental expenses.

Mortgage interest is particularly important because individual landlords with residential properties have to deal with the finance cost restriction rather than simply deducting mortgage interest from rental income.

The safest approach is to keep good records throughout the year, retain invoices and receipts, separate property expenses from personal spending and check the tax treatment of larger or unusual costs before including them on your Self Assessment tax return.

Tax rules can change, so landlords should always check the current HMRC guidance for the tax year they are reporting.

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