If you’re a landlord, knowing which expenses you can deduct from your rental income can really lighten your tax liability. Understanding what counts as an allowable expense could mean the difference between a slim profit and a decent return on your property investment.
What Qualifies as a Deductible Expense
Deductible expenses are basically the costs tied directly to renting out your property—HMRC lets you knock these off your rental income before they work out your tax bill, meaning these costs can be deducted. The key is that these costs have to be for business, not personal stuff.
Mortgage interest relief has shifted in recent years. Now, instead of deducting the full interest from your rental income, you get a 20% tax credit on whatever mortgage interest you pay.
Repairs and maintenance—like fixing leaks, repainting, or replacing domestic items—are all deductible. But if you’re adding value (say, putting in a new kitchen), that’s a capital expense and gets handled differently for tax. Capital expenditures, such as major upgrades or enhancements, are not deductible as they are considered improvements rather than maintenance.
Landlord insurance premiums? You can fully deduct those.
Professional fees—whether it’s letting agents, accountants, or solicitors—are fair game, as long as they relate to your rental business. Same goes for service charges and ground rent on leasehold properties.
Allowable and Non-Allowable Expenses
Allowable Expenses:
- Council tax and utility bills (if you pay them)
- Direct costs of letting (advertising, phone calls)
- Property management fees
- Legal fees for leases under 1 year
- Accountancy fees
- Vehicle costs for property visits (calculated by mileage)
- Tools and materials for repairs
Non-Allowable Expenses:
- Capital improvements (extensions, conversions)
- Personal expenses
- Mortgage capital repayments
- Private travel costs
- Clothing
- Pre-letting expenses before the property was available to rent
It’s worth keeping solid records of certain expenses—receipts, invoices, all of it. Having accurate records helps a lot with tracking. Some landlords swear by accounting software designed for rentals; it can make life easier come tax time and help you claim allowable expenses.
Tax rules do change, and everyone’s situation is a bit different. If you’re not sure, it’s wise to chat with a tax professional who knows the ropes.
Key Deductible Expense Categories
There are plenty of ways landlords can trim down their tax bill by claiming the right expenses. Knowing which costs make the cut is key if you want to hold onto more of your rental profits and reduce your taxable profit.
Repairs, Maintenance, and General Upkeep
Repairs and property maintenance are some of the biggest areas where you can claim deductions. Think fixing a broken boiler, patching up a leaky roof, or sorting out plumbing issues—these are all fully deductible in the year you pay for them.
It’s important to tell the difference between repairs and improvements. Swapping out a shattered window? That’s a repair. Installing double glazing everywhere? That’s an improvement, and HMRC treats that differently.
Regular stuff like painting, gardening, or pest control? All deductible. Just keep your paperwork—receipts, invoices, the lot.
If you replace furniture or appliances, you might be able to claim under the Replacement Domestic Items Relief. This covers like-for-like swaps for:
- Beds and sofas
- Curtains and carpets
- White goods (fridges, washing machines)
- Crockery and cutlery
Utilities and Service Charges
If you’re footing the bill for utilities, you can claim those costs. That includes:
- Gas and electricity
- Water rates
- Council tax (when the property’s empty)
- Internet and phone (if you provide them for tenants)
Service charges and ground rent for leasehold flats or apartments are deductible, too. These usually go to a management company.
Cleaning services—like end-of-tenancy cleans or keeping communal areas tidy—can be claimed. If you’re providing services to tenants and not getting reimbursed, those costs are usually deductible as well.
Wages for property-related employees, such as cleaners, can also be claimed as allowable costs.
Management fees paid to letting agents or property managers are business expenses. That covers tenant-finding, rent collection, and ongoing management charges.
Insurance and Professional Fees
Landlord insurance premiums are fully deductible—whether it’s buildings insurance, contents cover for furnished places, or specialist landlord policies.
Public liability insurance, rent guarantee cover, and legal expenses insurance all count. These policies protect you from the various risks of letting property and support your claims for deductible expenses.
Fees paid to accountants for tax returns or advice are deductible. Legal fees for drawing up short-term tenancy agreements or collecting rent can be claimed, too.
Subscriptions to property management software and memberships in landlord associations are usually allowable. Training courses related to property letting may also qualify.
Bank charges and interest on business accounts used just for rentals are deductible. Just remember, mortgage interest is now a tax credit, not a direct expense.
Maximising Tax Relief on Property Income
There are plenty of strategies to significantly impact your tax bill as a landlord. Knowing what you can claim keeps more income in your pocket and keeps you on the right side of HMRC.
Mortgage Interest and Mortgage Interest Relief
Mortgage interest relief changed a lot recently. Since April 2020, you can’t deduct mortgage interest payments from rental income. Instead, you get a 20% tax credit for the interest you pay.
This hits higher and additional rate taxpayers hardest. If you’re in the 40% or 45% bracket, you only get relief at the basic 20% rate.
Some landlords look at restructuring—maybe moving properties into a limited company—since companies can still deduct mortgage interest as a business expense.
Mortgage arrangement fees, early repayment charges, and broker fees can also qualify for the 20% tax credit, so don’t forget those. Mortgage arrangement fees, early repayment charges, and broker fees can also qualify for capital allowances, so don’t forget those.
Advertising and Letting Costs
Anything you spend to find new tenants or manage your property is usually deductible. That includes:
- Estate agent fees for finding tenants
- Letting agency management fees
- Advertising costs (newspapers, online platforms)
- Photography for listings
- Tenant reference and credit check fees (if you pay them)
Hang onto records for all your advertising spend. Digital platforms often send invoices, but you might need to ask for receipts for anything offline.
If you’re managing things yourself, the cost of landlord software is deductible. Some of these tools can help you keep tabs on expenses and pull together reports for your tax return.
Vehicle and Communication Expenses
You can claim travel expenses when you’re visiting properties for inspections, repairs, or meeting tenants. Keep a mileage log with:
- Date of journey
- Start and end locations
- Distance travelled
- Purpose of trip
The mileage allowance is 45p per mile for the first 10,000 miles, then 25p after that, if you’re using your own car.
Phone and internet costs used for your rental business are deductible, but if you use them for both personal and business stuff, you’ll need to work out the percentage that’s for rentals.
Some landlords get a separate phone just for rental work. It can make expense tracking simpler and help you maximise what you can claim.
Structuring Your Property Business for Optimal Deductions
The way you set up your property business has a big impact on your tax bill and what business costs you can claim. The right structure could save you thousands and offer some legal protection too.
Limited Company vs Sole Trader
Running things as a limited company can have tax perks compared to being a sole trader. Companies pay corporation tax on profits, while individuals can end up paying 40% or even 45% in income tax if they’re high earners.
Limited companies can deduct all mortgage interest payments, which is a big deal after the 2020 changes.
You can also pay yourself through dividends, which are usually taxed at lower rates than regular income. This can be more tax-efficient, at least in theory.
But, there’s more admin—annual accounts, corporation tax returns, and extra paperwork. Taking money out of the company also needs some planning to comply with tax regulations.
If you’ve got a bigger portfolio (say, four or more properties), the corporate structure often tips the scales in your favour, even with the extra hassle.
Differences for Individual Tax Payers and Property Investors
If you’re a landlord as an individual, you report your rental income on your Self Assessment tax return. Your profits get added to your other income and are taxed at your usual rate (20%, 40%, or 45%).
There’s a £1,000 property allowance, but you can’t fully deduct mortgage interest anymore—just the 20% tax credit, which isn’t great for higher-rate taxpayers.
Capital gains tax (CGT) is another difference. Individuals pay 18% or 28% on property gains (depending on your tax band), while companies pay the corporation tax rate on gains.
Some investors with larger portfolios use a hybrid approach—holding some properties personally and others through a company. That way, you can make use of personal allowances and still get corporate benefits on bigger investments.
Transferring existing properties into a company can trigger stamp duty and CGT, so it’s not always worth it. New purchases might be better suited for company ownership if you’re thinking long-term, as the costs associated with the purchase can be deducted to reduce the taxable gain.
Our Accountants Maximise Your Deductible Expenses
At Cottons, we know firsthand how tricky it can be for landlords to spot every deductible expense—and how much it matters for your bottom line. Our team specialises in property taxation, keeping up with the ever-changing HMRC regulations (because, honestly, who has time for that?).
We dig into your rental business with a fine-tooth comb to find every allowable expense, even the ones that often slip under the radar. It’s surprisingly common for landlords to miss out on deductions just because the rules aren’t exactly straightforward.
We’re here to help you claim for things like:
- Mortgage interest and finance costs
- Property repairs and maintenance
- Insurance premiums
- Utility bills you pay for tenants
- Professional fees (legal, surveying)
- Letting agent fees
- Council tax during vacant periods
- Travel costs related to property management
You’ll get all the deductions you’re entitled to—no more, no less—while staying firmly on the right side of tax law. That can mean a noticeable difference to your rental income at the end of the year.
Your property investments deserve a careful eye. With us, you won’t have to wonder if you’re leaving money on the table over a missed expense.
We’ll walk you through what records you need to keep accurate records, because let’s face it, HMRC loves paperwork. Good documentation makes all the difference, and we’ll help you put straightforward systems in place.
We offer practical, tailored tax planning advice that fits your property goals—because every landlord’s situation is a bit different. Get in touch.
