Getting your expense claims right reduces your tax liability and ensures you do not overpay HMRC. Equally, overclaiming expenses that are not allowable can trigger an HMRC enquiry with interest and penalties on the underpaid tax. The starting point is always: is this expense wholly and exclusively for the letting business? Personal or dual-purpose costs are either excluded entirely or apportioned.
Note the most important change in recent years: mortgage interest is no longer deductible as an expense. Since April 2020, the Section 24 restriction limits relief to a 20% basic rate tax credit. Mortgage interest still appears on your Self Assessment (SA105, Box 45), but it is not deducted from profit.
Letting agent fees and management charges
All fees paid to a letting agent are fully deductible:
- Tenant-find fee: fully deductible, including advertising on portals such as Rightmove and Zoopla
- Full management fee: typically 8–15% of monthly rent, fully deductible
- Re-letting fee and renewal fee: charged when a new tenancy or renewal is arranged, deductible
- Rent collection fee and credit referencing: deductible when charged by the agent as part of management
- Inventory preparation fee: where the agent commissions or prepares the inventory, deductible
Repairs and maintenance, the capital vs revenue distinction
This is the most common area of confusion. The distinction is between repairs (allowable) and improvements (capital, not allowable):
- Like-for-like repair: replacing a broken boiler with an equivalent model is a repair, deductible. Upgrading to a smart, higher-efficiency system that adds value, capital expenditure, not deductible
- Decorating: repainting walls and refreshing a kitchen to maintain its existing standard, deductible
- Roof repairs: patching or repairing existing roof covering, deductible. Installing an entirely new roof structure, capital
- Plumbing and electrical repairs: fixing a leak, replacing a fuse board like-for-like, deductible
- Initial repairs: repairs to bring a newly acquired property into lettable condition are generally capital if the property could not be let without them, see HMRC guidance PIM2030
- Improvements: adding a bathroom, converting a loft, adding an extension, capital. These increase the CGT base cost of the property
Replacement of domestic items (replacement relief)
Since April 2016, landlords letting furnished or part-furnished properties can claim replacement relief when renewing domestic items:
- What is covered: moveable furniture (beds, sofas, dining tables), household appliances (washing machines, fridges, dishwashers), carpets and flooring, curtains and blinds, crockery and cutlery
- What is not covered: fixtures forming part of the property itself (fitted kitchens, built-in wardrobes, bathroom suites, boilers), these are subject to the repair rules above
- The claim: the cost of the replacement item is deductible, not the original purchase. The original purchase is not deductible
- Like-for-like only: if you replace a basic washing machine with a premium model, only the equivalent cost of the basic replacement is deductible
- Disposal proceeds: if you receive anything for the old item (trade-in, scrap value), deduct it from the claim
Insurance premiums
Landlord-specific insurance premiums are fully deductible:
- Buildings insurance: deductible. For leasehold properties where the freeholder insures the building, the service charge element covering insurance is deductible
- Contents insurance: deductible for furnished properties
- Landlord liability insurance, rent guarantee insurance, and legal expenses insurance: all deductible
- Personal life insurance or mortgage payment protection: not deductible, these are personal policies, not property-specific
Council tax, utilities, and void period costs
Who pays council tax and utility bills depends on occupancy:
- During voids: if the property is empty and the landlord is liable for council tax, the council tax paid is a deductible expense
- During tenancies: council tax and utilities are normally the tenant's responsibility. If you pay them as part of an all-inclusive rent, they are deductible, but the full inclusive rent received is also your income
- Gas safety check (CP12), EICR electrical inspection, and EPC: all deductible
- Water rates: deductible if the landlord, not the tenant, pays them
Professional fees
Professional fees are deductible only when related to the management of the letting business, not acquisition or disposal:
- Accountancy fees for preparing Self Assessment returns or rental accounts: fully deductible
- Legal fees for lease renewals (short renewals up to 50 years), eviction, and recovering rent arrears: deductible
- Legal fees for acquiring or disposing of a property: capital costs, deductible against capital gains tax on sale, not income tax
- Surveyor fees for assessing repair bills: deductible. Valuation surveys for purchase or re-mortgage: capital/personal, not deductible
What cannot be deducted
The following costs are not allowable expenses against rental income:
- Mortgage capital repayments: only the interest element is relevant and that is now restricted by Section 24
- Mortgage arrangement fees on a new loan: capital costs (may be deductible against capital gains on sale)
- Depreciation: HMRC does not allow accounting depreciation, use replacement relief for furnishings instead
- Initial furnishing of a property: the original purchase of furnishings is not deductible (but replacements in future years are)
- Expenditure on acquiring or selling the property: legal fees, SDLT, agent fees on sale, these are capital costs
- Your own time: personal management time is not deductible unless the business is structured as a company and you are paid a salary
Frequently asked questions
Can I deduct mortgage interest as an expense on my tax return?+
No. Since April 2020, mortgage interest is no longer deductible as an expense from rental income. Instead, under Section 24, you enter the total finance costs in Box 45 of SA105 and HMRC applies a 20% basic rate tax credit. This means basic rate taxpayers are unaffected, but higher-rate (40%) and additional-rate (45%) taxpayers face significantly higher tax bills than before 2017.
What is the difference between a repair and an improvement for tax purposes?+
A repair restores an asset to its original working condition without enhancing it, this is revenue expenditure and fully deductible. An improvement adds value or extends the useful life of the property beyond its original state, this is capital expenditure and not deductible against rental income, though it increases the CGT base cost. Example: replacing a broken boiler like-for-like is a repair; upgrading from a standard to a smart system that significantly increases the property's value is an improvement.
Can I claim the cost of new furniture and appliances I bought for a new rental property?+
No, the initial purchase of furnishings for a property is not deductible. Replacement relief only applies when you replace an existing domestic item. Future replacements of those items will be deductible. For furnished holiday lets, the rules are different, capital allowances (including the Annual Investment Allowance) can be claimed on the initial purchase of furnishings.
Can I deduct the cost of travelling to my rental properties?+
Yes, provided the travel is for a genuine business purpose: supervising repairs, attending inspections, meeting tenants about problems, or managing the property. Use HMRC's approved mileage rate (45p/mile for the first 10,000 miles). Keep a mileage log with the date, purpose, and distance. Travel to acquire new properties or travel that is partly personal is not deductible.