Allowable expenses for landlords: what you can claim.

The basic test

A cost is allowable if it is spent wholly and exclusively for the purposes of renting out the property. That is the starting point for every item in this guide.

Some costs are partly personal. Your phone, your car and your home broadband are good examples. Where only part of a cost is for the rental business, you can deduct that part. You need a fair, sensible way to split it, and a record of how you did it.

This guide is about individual landlords who let residential property and pay Income Tax. Companies that let property pay Corporation Tax and follow different rules, mainly on loan interest. If you are weighing up which way to own property, our page on bookkeeping for limited companies covers the company side.

Running costs you can usually claim

GOV.UK lists these as allowable expenses for residential lets:

• Letting and management. Letting agent fees and management fees.
• Professional fees. Accountants' fees, and legal fees for lets of a year or less or for renewing a lease of less than 50 years.
• Insurance. Buildings and contents insurance.
• Repairs. Maintenance and repairs to the property, but not improvements.
• Utilities and Council Tax. Gas, water, electricity and Council Tax, where you pay them rather than the tenant.
• Rent and charges. Rent, ground rent and service charges.
• Services. Things you pay for, such as cleaning or gardening.
• Other direct costs. Phone calls, stationery and advertising for new tenants.

Vehicle running costs can count too, but only the share used for the rental business. If you drive to inspect a property or meet a tradesperson, keep a mileage log for those trips.

Costs you cannot claim

Some spending feels like a business cost but is not allowed. Common examples:

• Mortgage capital. Only the interest part of a mortgage payment gets tax relief. The capital you repay never does.
• Personal costs. Anything not spent solely for the rental business, such as private phone calls.
• Clothing. Not even a suit you only wear to meet tenants or agents.
• Improvements. Work that adds to the property rather than restoring it. More on this below.
• The first set of furniture. The cost of furnishing a property or room for the first time.

Repairs or improvements?

This is the line that matters most, because the amounts are often large. HMRC's guidance says a repair restores an asset to its original condition, sometimes by replacing parts of it. A repair is an allowable expense.

An improvement is a capital cost. Building an extension or adding something the property did not have before is capital. You cannot deduct it from rental income. You should still keep the invoices, because capital costs may be set against Capital Gains Tax when you sell.

A few practical pointers:

• Fixing a leaking roof, replacing broken tiles or repainting between tenants is normally a repair.
• Adding a new room, a conservatory or a loft conversion is an improvement.
• If you buy a property that is not fit to let, work to make it fit for letting is unlikely to count as a repair.

Where a job mixes both, split the invoice. Ask your builder to show the repair and the improvement as separate lines. That makes the split easy to support if HMRC ever asks.

Mortgage interest and other finance costs

For individual landlords, mortgage interest is not deducted as an expense. Instead, Income Tax relief on residential finance costs is restricted to the basic rate. You get a tax reduction worth 20% of the lowest of three figures:

• Finance costs. The finance costs for the year that were not deducted from rental income, plus any brought forward from earlier years.
• Property profits. The profit of your property business for the year.
• Adjusted total income. Your income after losses and reliefs, leaving out savings and dividend income, that is above your Personal Allowance.

The reduction cannot create a tax refund. If profits or adjusted total income is the lowest figure, the unused part of your finance costs is carried forward to the next year.

A worked example

Replacing furniture and appliances

You can claim the cost of replacing domestic items in a let home. This is called replacement of domestic items relief. It covers things like:

• Movable furniture, such as beds and free-standing wardrobes
• Furnishings, such as curtains and carpets
• Household appliances, such as a fridge or washing machine
• Kitchenware, such as crockery and cutlery

The rules are strict. The old item must no longer be available for the tenant to use. The relief does not cover the first purchase of items for a property. If the new item is an upgrade, you can only claim what a like-for-like item would have cost. You must also take off anything you received for the old item.

The £1,000 property allowance

The first £1,000 of rental income each year can be tax-free under the property allowance. It is an alternative to claiming expenses, not an extra. If you claim the allowance, you cannot also deduct your expenses. Our guide to whether the property allowance is worth claiming compares the two.

For most landlords with a mortgage or an agent, actual costs are well above £1,000, so claiming expenses is usually better. The allowance suits people with small amounts of property income and few costs.

GOV.UK also sets out when you must tell HMRC. If your rental income is more than £1,000 but up to £2,500 a year, contact HMRC. You need to complete a Self Assessment return if your rental income is more than £2,500 after allowable expenses, or more than £10,000 before them.

Records that support your claims

Claims are only as good as the evidence behind them. For each property, keep:

• Invoices and receipts for every cost you claim
• Mortgage statements showing the interest charged, separate from capital repaid
• Agent statements showing rent collected and fees taken
• Mileage logs for trips made only for the property business
• Invoices for capital work, kept for Capital Gains Tax when you sell

Our guide on how long to keep business records covers retention periods. If you also need to send quarterly updates, see Making Tax Digital for landlords. Sole traders who also let property can read which expenses the self-employed can claim for the trading side.

Common mistakes to avoid

• Deducting the whole mortgage payment. Capital is never allowed, and interest goes through the 20% tax reduction instead.
• Treating a new kitchen as a repair. Like-for-like replacement may be a repair. An upgraded layout or extra units can turn it into an improvement.
• Claiming the first furniture. Furnishing a property for the first time is not covered by the replacement relief.
• Mixing personal and property spending. One card for everything makes it hard to prove what was for the let. A separate account helps.
• Losing receipts. A cost with no paperwork is hard to defend. Collect receipts as you go, not at the end of the tax year.