Knowing which expenses are deductible against your rental income can significantly reduce your tax bill. Here's a comprehensive guide to allowable and disallowable expenses.
Reducing your tax liability as a landlord starts with understanding which expenses are allowable deductions against rental income. This is an area where many landlords under-claim, paying more tax than necessary.
Generally allowable expenses
The following costs are typically allowable deductions for individual landlords (always confirm with a qualified accountant for your specific situation):
Letting agent and management fees — all fees paid to agents for finding tenants, managing the property or providing other services are fully deductible.
Maintenance and repairs — the cost of keeping the property in its existing condition is allowable. This includes fixing a broken boiler, repairing roof tiles, repainting worn internal walls and unblocking drains.
Buildings and landlord insurance — premiums paid for buildings insurance, contents insurance and specialist landlord insurance are allowable.
Professional fees — accountancy fees for preparing rental accounts, legal fees for pursuing rent arrears or evictions (but not those relating to purchasing or disposing of property), and property management consultancy are allowable.
Service charges and ground rent — for leaseholders, these regular payments are allowable expenses.
Utility bills paid by the landlord — gas, electricity and water bills the landlord pays (for void periods or as part of an HMO package) are allowable.
What is not allowable
Capital improvements — work that enhances the property beyond its original condition (converting a loft, adding an extension, installing a new kitchen where the old one was functional) is capital expenditure, not a revenue expense. It may reduce Capital Gains Tax when the property is sold.
Mortgage interest — individual landlords cannot deduct mortgage interest as an expense (see our guide on the mortgage interest restriction).
Personal costs — commuting costs between your home and the rental property, personal insurance unrelated to the property, and any personal element of dual-purpose expenses are not allowable.
Keep receipts for everything
HMRC can request evidence of any expense claim, so maintaining organised records of all expenditure is essential. A dedicated bank account for rental property income and expenses makes record-keeping significantly simpler.