The 'wholly and exclusively' rule
An expense is allowable only if it is incurred wholly and exclusively for the letting business and is a revenue (not capital) cost. Personal or dual-purpose costs are excluded or apportioned.
Repairs vs improvements, the critical distinction
- Repair (allowable): like-for-like restoration of an asset to its original working condition
- Improvement (capital, not allowable): adding value or extending useful life beyond the original state
- Example: replacing a broken boiler with an equivalent model = repair. Upgrading to a smart system = improvement
- Initial repairs on a newly acquired property may be capital if the property could not be let without them (HMRC PIM2030)
Common allowable expenses
| Expense | Deductible? |
|---|---|
| Letting agent fees (find, manage, renew) | Yes, fully deductible |
| Repairs and maintenance (like-for-like) | Yes, revenue expense |
| Replacement of domestic items (furniture, appliances) | Yes, replacement relief applies |
| Buildings and landlord liability insurance | Yes, fully deductible |
| Council tax and utilities during void periods | Yes, when landlord is liable |
| Gas safety check, EICR, EPC | Yes, statutory compliance costs |
| Accountancy fees for rental accounts | Yes, professional fees |
| Mortgage interest | No, Section 24: 20% credit only (Box 45) |
| Capital improvements | No, increase CGT base cost only |
| Initial furnishing of a new letting | No, replacements in future years are allowable |
Replacement of domestic items relief
Replacement relief (which replaced the old renewals method from April 2016) allows landlords to deduct the cost of replacing furniture, appliances, and soft furnishings, but not the original purchase. Only the equivalent cost of a like-for-like replacement is deductible; any upgrade premium is capital.
Since April 2020, mortgage interest cannot be deducted from rental income under Section 24. Enter it in Box 45 of SA105. Basic rate taxpayers receive a 20% tax credit equivalent to the old deduction; higher-rate and additional-rate taxpayers bear an additional tax cost.
Travel to rental properties
Travel costs incurred visiting properties to carry out or supervise repairs, attend inspections, or deal with tenant problems are deductible. Use HMRC's approved mileage rate (45p/mile for the first 10,000 miles). Keep a mileage log with date, purpose, and distance.