What expenses can landlords claim?

Common allowable expenses

The general test for any rental cost is the wholly and exclusively rule. The expense must be incurred wholly and exclusively for the purposes of the property business. Where a cost has a private element, you claim only the business proportion.

The everyday running costs of a residential let are normally allowable in full, including the following.

• Letting agent and management fees, including the cost of finding tenants and ongoing management.
• Repairs and maintenance that restore the property to its previous condition, such as repainting, fixing a boiler or replacing broken roof tiles.
• Buildings and contents insurance on the let property.
• Ground rent and service charges on a leasehold property.
• Council tax or utilities where you as the landlord pay them rather than the tenant.
• Accountancy fees for preparing the rental accounts and return.
• Certain travel to inspect or maintain the property, at the mileage rate of 45p per mile for the first 10,000 miles and 25p after that.

For a fuller breakdown of each category, see our detailed page on landlord allowable expenses, and our overview of landlord tax for how these costs fit into the wider picture.

Expenses people often miss

Several reliefs and smaller costs are genuinely allowable but routinely forgotten.

Replacement of domestic items relief. When you replace a movable furnishing in a let property, such as a sofa, bed, carpet, curtains, white goods or crockery, you can claim the cost of a like for like replacement. The relief covers the replacement only, not the initial purchase when you first furnish a property. If you upgrade to a noticeably better item, you claim only the cost of an equivalent modern replacement of the old one, less anything you receive for the old item.

The mortgage interest restriction and the finance cost reducer. This is the area landlords most often misunderstand. For a residential let, you no longer deduct mortgage interest from your rental profit. Instead, your profit is calculated without the interest, and you then receive a basic rate tax reduction worth 20 per cent of your finance costs. Finance costs include mortgage interest, interest on loans to buy furnishings and certain related fees. We explain how this affects your liability in the worked example below.

The £1,000 property allowance. If your total rental income for the year is £1,000 or less, it is normally exempt and you may not need to report it. If your income is higher, you can choose to deduct the £1,000 allowance instead of your actual expenses, which is worth doing only when your real costs are lower than £1,000. You cannot claim both the allowance and actual expenses on the same income.

Pre letting costs. Qualifying revenue costs incurred in the period before you first let a property can often be treated as if incurred on the first day of letting, provided they would have been allowable once the business was running.

Risky or commonly challenged expenses

Some costs are commonly claimed in error, and these are the ones HMRC is most likely to question.

Improvements rather than repairs. The line between a repair and an improvement matters because repairs are deducted from profit while improvements are capital and instead reduce a future capital gain. Replacing a tired but functioning kitchen with a similar standard kitchen is usually a repair. Extending the property, adding an en suite that was not there before, or fitting a substantially higher specification kitchen is an improvement. Like for like replacement using modern equivalent materials is still a repair, even if the new materials are better than the originals simply because the old ones are no longer made.

Mortgage capital repayments. Only the interest element of a mortgage is a finance cost. The capital repayment is never allowable.

Your own time. You cannot pay yourself for managing your own property and claim it as an expense.

The cost of buying or selling the property. Legal fees and stamp duty on purchase, and the costs of sale, are capital. They are not running costs, although they may reduce a capital gain when you sell.

Where a property is jointly owned, income and allowable expenses are normally split according to ownership shares. Married couples and civil partners who own jointly are usually taxed on a 50 to 50 basis unless they hold the property in unequal shares and make the appropriate election.

Records to keep

Good records make claiming straightforward and protect you if HMRC asks questions. Keep the following.

• Rental income records, including tenancy agreements and a log of rent received.
• Invoices and receipts for every expense you claim, clearly showing what the cost was for.
• Mortgage statements showing the interest charged each year.
• Records of repairs versus improvements, with enough detail to show why a cost is one or the other.
• Mileage logs for property visits.

If you are an individual landlord, keep your records for at least 5 years after the 31 January submission deadline for the relevant tax year. Many landlords find that good bookkeeping through the year removes the January scramble entirely, and it feeds straight into your Self Assessment return.

A worked example

If Priya were a higher rate taxpayer, this is exactly why the restriction matters. Under the old rules she would have received 40 per cent relief on the interest. Now everyone receives relief at the same 20 per cent rate, regardless of their tax band.

Common mistakes

The errors we see most often are easily avoided.

• Deducting full mortgage interest from profit. For residential lets this is wrong and inflates the relief claimed. Use the finance cost reducer instead.
• Treating an improvement as a repair. This brings forward relief that should have been kept for capital gains tax on sale.
• Claiming the initial cost of furnishing. Replacement of domestic items relief covers replacements, not the first purchase.
• Forgetting the 60 day capital gains deadline. When you sell a residential property at a gain, you must report and pay any capital gains tax within 60 days of completion. Missing this leads to penalties.
• Mixing private and let costs. Only the business proportion of any shared cost is allowable.

What you should do

Start by listing every cost connected to your let and sorting it into running costs, finance costs and capital items. Apply the finance cost reducer to your mortgage interest rather than deducting it. Keep evidence for anything you describe as a repair, and diarise the 60 day reporting deadline before you ever exchange on a sale.

If you own more than one property, let jointly, or are unsure whether a cost is a repair or an improvement, it is worth having a specialist check it. Our team works with property investors every day. You can read how we help on our accountants for landlords page, or start your quote for a fixed fee.

Frequently asked questions