Tax & finance

Allowable Expenses: What Landlords Can Deduct From Rental Income

Tax & finance · 6 min read

Tax on a rental is charged on your profit, not your rent — and the gap between the two is your allowable expenses. Knowing which costs you can legitimately deduct, and keeping the records to back them, is one of the simplest ways to make sure you neither overpay nor overclaim. It's also one of the areas landlords understand least, because the rules draw a few important lines that aren't obvious. This is a plain-English map of how it works. It is general guidance, not tax advice — the detail, and the rates and thresholds, are set by HMRC, change (often at a Budget), and depend on your circumstances, so always check the current position on GOV.UK and take advice from an accountant for your own situation.

The basic test: "wholly and exclusively" for the letting

The general rule is that a cost is deductible if it's incurred wholly and exclusively for the purposes of renting out the property. Day-to-day running costs of the letting business usually qualify; personal spending, and anything with a mixed purpose, doesn't automatically. Where a cost is genuinely split between business and private use, only the business proportion is allowable, and you need a sensible, defensible basis for the split. The common costs landlords claim include:

Letting agent and management fees, and the cost of finding tenants.
Repairs and maintenance that restore the property — not improvements (see below).
Insurance — buildings, contents and landlord-specific cover.
Letting-related bills you pay — ground rent, service charges, and any utilities or council tax you cover rather than the tenant.
Professional and compliance costs — accountancy for the letting, and the safety certificates a let requires.

The line that trips people up: revenue versus capital

This is the distinction that matters most. Revenue costs — the running repairs and expenses of keeping the property let — are deducted from your rental income each year. Capital costs — buying the property, or improving it beyond its original condition — are not; instead they generally come into play against Capital Gains Tax when you eventually sell. The practical test for repairs is whether you're restoring something to its previous state (revenue, deductible now) or improving it to something better (capital). Replacing a broken-down boiler with a reasonable modern equivalent is usually a repair; knocking two rooms into one, or adding an extension, is an improvement. Get the category right, because claiming a capital cost as a revenue expense is a classic error HMRC looks for.

The trap — mortgage interest isn't the full deduction it used to be: many landlords still assume they can simply deduct all their mortgage interest from rental income. For individual residential landlords that changed — finance costs such as mortgage interest no longer come off your rental profit in full. Instead, relief is given as a reduction in your tax bill at the basic rate, which can leave higher-rate taxpayers worse off than the old sums suggested, and can even push some into a higher band because the rent counts as income before the relief. The mechanics are exactly the kind of thing to model with an accountant. Check the current rules on GOV.UK.

Replacing furnishings: the relief that replaced "wear and tear"

If you let furnished, you can't deduct the cost of furnishing the property in the first place, but you can usually claim replacement of domestic items relief — the cost of replacing things like beds, sofas, white goods, carpets and crockery when they wear out, on a like-for-like basis. As with repairs, the principle is replacement, not upgrade: swap a worn-out item for a reasonable modern equivalent and it's generally claimable; buy a markedly better one and only the equivalent-replacement cost tends to count. Keep the receipts and note what was replaced and when, because this is a relief you have to be able to evidence.

If you claim it, you must be able to show it

Every deduction stands or falls on your records. HMRC can ask you to justify what you claimed, and "I'm sure I spent it" is not a figure. That means keeping invoices, receipts and bank records for each cost, noting what each one was for, and keeping them for as long as the rules require — and it's about to matter even more, because Making Tax Digital for Income Tax will require many landlords to keep digital records and report quarterly. The landlords who find tax season painless aren't the ones with clever schemes; they're the ones whose expense records are already complete, categorised and to hand.

What landlords should do now

Separate revenue from capital as you spend — tag each cost as a running expense (deduct now) or an improvement (capital, for later).
Keep every receipt and invoice, with a note of what it was for and the property it relates to.
Apportion mixed costs honestly, keeping a record of how you worked out the business share.
Understand your finance-cost position — don't assume full mortgage-interest deduction; model it with an accountant.
Verify the current rules and figures on GOV.UK, especially around a Budget, and get professional advice on anything material.

Allowable expenses are where good record-keeping turns directly into money: the same dated, organised paper trail that keeps you compliant also makes sure your tax is worked out on your real profit, not an inflated one. You don't need to be an accountant to get the basics right — you need to know the revenue-versus-capital line, understand that mortgage interest is treated differently now, and keep the evidence. For the wider picture of what's confirmed and what's merely rumoured on landlord tax, see our guide to confirmed versus rumoured tax changes.

Keep your expense records where they belong — together

LandlordProof keeps each property's documents, receipts and key dates in one place, so when it's time to work out your rental profit — or your accountant asks — your costs are already organised per property rather than scattered across inboxes and shoeboxes. Free for your first property.

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General guidance for UK landlords, not tax or financial advice. What counts as an allowable expense, how finance-cost relief and reliefs such as replacement of domestic items work, and the relevant rates and thresholds are set by HMRC, depend on your individual circumstances, and change over time — including at Budgets. Always verify the current rules at GOV.UK and take advice from a qualified accountant on your own position.