Expenses - what you can and can’t claim
The expenses overview clarifies eligible deductions for landlords, maximising tax benefits and compliance
As a landlord, you should claim property expenses. Every pound spent on an allowable property expense can be deducted from your profits, which reduces your tax liability.
That means one of the most important administrative tasks for landlords is recording everything you spend on your rental property and carefully filing every receipt for activities related to the business of letting, managing and maintaining it.
The good news is there are lots of apps and software that can help with this, even allowing you to capture your expenses by photographing the receipts.
Essentially, residential landlords can claim for the day-to-day costs of letting, managing and maintaining their properties.
The key thing to know is that any expenses you claim as an income tax deduction must have been incurred ‘wholly and exclusively’ for the purpose of running your rental property business. In technical terms, they must also be ‘revenue expenditure’, which means they’re incurred in order to earn income.
Expenses that are not classed as ‘revenue’ – such as extension or refurbishment that enhances a property’s value – are usually ‘capital’ expenses, which can be deducted from the capital gain when you eventually come to sell the property.
Business costs – such as phone calls, some travel costs and running a home office
Fees for services by professionals – e.g. accountants, letting agents, solicitors and surveyors
Insurance cover, including for buildings, contents, and rent guarantee
Repairs to and replacement fittings and furnishings for the property
Maintenance services - e.g. cleaning or gardening
Ground rent and service charges for leasehold properties
Utility bills and council tax while the property is unoccupied
Bad debts (if accounting on an accruals basis)
Some of these are straightforward, but some – especially business expenses and repairs – are more complex, which is why it’s highly advisable to engage a tax specialist to handle your tax returns. You may also want to have them handle your regular bookkeeping, especially if you have multiple rental properties.
If you have a holiday let, the rules are slightly different. For instance, currently, you can claim holiday let relief, which includes:
Being able to deduct the full cost of mortgage interest from rental income
Paying CGT at a reduced rate of ten per cent when the property is sold, as long as you qualify for Business Asset Disposal Relief
However, in the 2024 spring budget, the Chancellor announced that this relief would be scrapped from 6 April 2025, unless the let(s) is held in a Limited company.
See the government website for more information and speak to a tax adviser to make sure you understand what you can and can’t deduct from your profits, both this year and when the changes to relief come into force next year.
Here’s a closer look at some of the key expenses you can claim as a residential landlord:
You can think of these as ‘operational’ costs – the admin side of running your property business.
The easiest way to account for working from home and travel with your own vehicle is to use HMRC’s ‘common sense’ approach which is explained here.
However, if you work from home but run your properties through a limited company, you can’t use simplified expenses. In that case, there are specific formulas for splitting your bills between personal and business use, which a tax adviser can help you understand.
If you choose not to use the simplified formula, it’s best to consult a tax adviser to make sure you get your business expenses claim right, as it can be fairly complicated.
Mortgage interest used to be an allowable expense, so landlords could simply deduct any buy to let mortgage interest payments from their rental income each year.
However, this allowance was gradually withdrawn between 2017 and 2020. Now you simply receive a tax credit equal to 20% of whichever is the lower out of:
Total mortgage interest and finance costs
Total profit less any losses brought forward (see Section 2: ‘What happens if a landlord makes a loss?’)
Total earned income that exceeds the personal allowance (not including income from savings and dividends)
This 20 % tax credit also applies to the interest on any other money you borrowed to fund activity related to your property business, e.g. credit to buying equipment for your rental or loans to pay for repairs.
Professional fees that relate to the day-to-day running of the business are allowed.
So, fees from accountants, solicitors and surveyors for services such as chasing bad debts, evicting tenants in rent arrears and keeping financial records are allowed. You can also deduct the full letting and management fees from a letting agent.
Costs related to buying, selling or planning applications for a property are not deductible from income – they will form part of your capital gains tax calculation when you sell the property.
It is possible that some purchase costs could be allowed, such as mortgage arrangement fees and mortgage broker fees – although these are subject to the same Section 24 rules and treatment as mortgage interest.
And if you speak to your legal company, ask if they can split their time between that spent on conveyancing and their time in financing, as this can aid your tax accountant when deducting costs.
This is where the ‘revenue’ versus ‘capital’ expense consideration comes into play.
To be classed as a ‘revenue’ expense that can be deducted from income, the repair or replacement must simply return the property to its previous condition.
If it increases the value – e.g. if you add a room through conversion or extension, or replace a simple kitchen with a significantly higher-value one – then you’ll have to wait until you dispose of the property, at which point you can deduct the cost from your capital gains.
However, if you’re replacing an item with something that’s just a more modern alternative, that will usually be allowed as a revenue cost, even if it does improve the property’s value – such as replacing single-glazed windows with double glazing.
Top tip: If you’re having refurbishment work carried out that’s a mixture of capital and revenue items, ask your contractors to invoice separately for repairs and improvements. This is just one reason why it’s helpful if you employ contractors that are familiar with buy to let properties.
You can claim ‘replacement of domestic items’ relief for things like:
Movable furniture; for example, beds and free-standing wardrobes
Furnishings; for example, curtains, linens, carpets and floor coverings
Household appliances; for example, televisions, fridges and freezers
Kitchenware; for example, crockery and cutlery
And you can also include the cost of disposal of old items and delivery of new ones.
If you’re letting out a fully furnished property, you can claim Replacement Domestic Item relief, which took the place of ‘wear and tear allowance’ from 2016.
However, under this scheme, the initial cost of purchasing domestic items for a dwelling house isn’t a deductible revenue expense, so no relief is available for these costs.
You can deduct the cost of any training and educational materials, as long as you’re reinforcing existing skills and have the relevant receipts.
For example, if you bought a book about property tax for landlords or attended a seminar to learn more about how to attract the best tenants, then those would be allowable expenses.
But the cost of going on a course to ‘become a property millionaire’ or even learning how to tile a bathroom will probably not be deductible.
Rent arrears are the most likely bad debt for a property business, but it’s important to understand that a debt doesn’t become ‘bad’ simply because someone owes the money - you must make some reasonable effort to recover the money.
In the case of a tenant owing rent, this means you must have launched court proceedings or passed the case to a debt collector.
Once it’s clear that the debt will not be recovered – for example, if the tenant declares bankruptcy or simply vanishes – then it’s considered to be ‘bad’, as long as you are using an accruals basis as opposed to cash.
If you have income from property or land, you’re eligible for a tax exemption of up to £1,000 a year. And as a self-employed individual, you’re also entitled to a separate ‘trading allowance’ of up to £1,000 a year.
However, if you claim the trading allowance, you can’t claim any business expenses.
The allowance is there to benefit low-income businesses and chances are that, as a landlord, you will have a far greater level of annual expenses to account for.
