Tax tips for Landlords on what you can and can’t claim

If you’re a small landlord, the UK tax rules can feel like alphabet soup. SA, CGT, PRR, MTD… and that’s before you get into the subtleties of what counts as a repair versus an improvement. The good news? With clear principles, neat records, and a few smart choices, you can stay compliant and avoid leaving money on the table. This article demystifies your obligations, highlights the expenses you can (and cannot) claim, and shares practical strategies that keep HMRC happy while helping you keep more of your rental profit.

This article is general guidance only and is not personal tax advice. Rules change frequently, so always check the latest HMRC guidance. Speak to a tax adviser to cover your specific circumstances.

1. Understanding your tax status

Most small landlords own property as individuals (sole landlords), sometimes jointly with a spouse or partner. Others operate through a partnership, and a growing number use a limited company (often a special-purpose vehicle). That choice affects how you are taxed, your reliefs, and even your admin.

Individuals (sole or joint ownership)

Rental profits are charged to Income Tax via Self-Assessment. Since April 2020, individuals with residential lets can no longer deduct mortgage interest in the old way. Instead, you get a basic-rate tax credit (20%) on the relevant finance costs. This can reduce your tax bill, but will not increase a loss. Companies are not affected by this restriction, which is one reason some landlords consider incorporation.

Partnerships

A property partnership is essentially a look-through. The partnership calculates profit, but tax is paid by each partner according to their share. Finance cost restrictions for residential property still apply to individual partners.

Limited companies

The company pays Corporation Tax on its rental profits and chargeable gains. For the 2025/26 year, the main rate is 25% with a 19% small profits rate up to £50,000 of profits and marginal relief in between. Loan interest is an ordinary deductible expense for companies (no Section 24 restriction). Remember that you then face a second tax layer when extracting profits (e.g., dividends).

Accounting basis

From 2024/25, the “cash basis” became the default method for unincorporated property businesses. If you meet the criteria and prefer standard (accruals) accounting, you must actively opt out on your return. Cash basis records income when received and expenses when paid, which many small landlords find simpler.

2. Allowable expenses you can claim

HMRC’s yardstick is “wholly and exclusively” for the property business. If a cost is entirely for letting and managing your rental, it’s likely allowable. Get comfortable with the common categories below and keep evidence for each.

Mortgage interest and other finance costs (individuals)

You cannot deduct finance costs from rental profit. Instead, you claim a basic-rate (20%) tax reduction on eligible finance costs, including mortgage interest and certain fees. If your profits or “adjusted total income” are low, part of the finance costs may carry forward. Companies continue to deduct interest in full in the normal way.

Letting agent and management fees

Fully deductible when they relate to the rental. That includes tenant-find fees, inventory, and ongoing management charges.

Repairs and maintenance

Repairing a damaged roof, re-pointing brickwork, fixing a leak, like-for-like replacement of worn parts, and similar work is usually a revenue expense and deductible. If in doubt, HMRC’s manuals provide useful signposts on distinguishing a repair from an improvement.

Replacement of domestic items

If you let out a dwelling and replace moveable household items. Items like beds, sofas, carpets, curtains, white goods, TVs and kitchenware you can generally claim the cost of the replacement (not the original purchase), limited to a like-for-like modern equivalent (so upgrading a sofa to a sofa-bed is only partly allowable). This relief has replaced the old wear-and-tear allowance.

Insurance premiums

Landlord building, contents, and public liability policies are allowable.

Council tax and utilities (where you pay them)

If you, not the tenant, are responsible for council tax, water rates, gas, electricity or communal energy, you can claim the cost that relates to the rental period.

Legal and accounting fees

Ongoing professional fees are generally allowable. For example, routine legal costs on short lets or renewals under 50 years, and accountants’ fees for preparing your rental figures. Some legal costs are capital (see “What you can’t claim”).

Travel for property management

Travel to your rental for inspections, collecting keys, supervising works, or meeting the agent is deductible when it’s purely for the business. HMRC allows a fixed-rate mileage method for unincorporated landlords (cars at the standard rates) as a practical way to claim motoring costs. Keep a mileage log.

Advertising and marketing

Listings and adverts to secure tenants are allowable, along with direct costs such as phone calls and stationery for the rental.

Property allowance

If your gross property income is small, the £1,000 property allowance can be used instead of itemised expenses, but not as well as them. You must choose one approach each year.

3. What you can’t claim

Understanding what doesn’t qualify is just as important.

Improvements and capital enhancements

Adding an extension, converting a loft, or installing a brand-new kitchen with upgraded specification are capital costs, not revenue repairs. They’re not deductible against rental profit, although they may reduce CGT when you sell by increasing your base cost. HMRC’s guidance and examples are helpful when a “repair” involves a modern equivalent (e.g., swapping single-glazed windows for double-glazing will usually remain a repair).

Personal or mixed expenses

If a cost is partly personal, you can only claim the rental business share. Private clothing, general home costs unrelated to the rental, and personal phone usage do not qualify.

Initial purchase costs

Stamp Duty Land Tax (or LBTT/LTT equivalents), conveyancing on the original purchase, and surveys are capital. They’re not revenue deductions, but usually add to your acquisition cost for CGT purposes on sale.

Capital repayments on your mortgage

Only finance interest and certain related fees are relevant for tax. Capital repayments are not deductible.

4. Capital Gains Tax (CGT) considerations

When you sell

Individuals who sell a UK residential property that isn’t fully covered by Private Residence Relief may face CGT. For 2025/26, the annual exempt amount is £3,000 per person. Gains above that are taxed at 18% to the extent you have unused basic-rate band, and 24% for higher/additional-rate bands. These rates apply specifically to residential property gains.

Report within 60 days

If there’s CGT to pay, UK residents must report and pay within 60 days of completion using HMRC’s UK Property Account (separate from Self-Assessment). Missing this deadline can trigger penalties and interest.

Private Residence Relief (PRR) and Lettings Relief

PRR can exempt some or all of the gain on your main home. Where it wasn’t your main home throughout, relief is apportioned, and the final nine months of ownership still qualify automatically. Since April 2020, Lettings Relief is restricted and now typically applies only where the owner shared occupancy with the tenant (e.g., a lodger situation), not to a standard buy-to-let you no longer lived in.

Allowable sale costs

Estate agents’ fees, legal fees on sale, and certain improvement costs can reduce the gain. Keep evidence from day one to avoid a scramble later.

Furnished holiday lettings (FHL) regime abolished

From 6 April 2025 for Income Tax and CGT (and 1 April 2025 for Corporation Tax), the special FHL tax regime was abolished, removing previous advantages such as full interest relief for individuals and certain CGT reliefs. Many FHLs are now treated like other residential lets. If you previously relied on FHL rules, ensure you’ve updated your approach.

5. Record-keeping essentials

Tidy records do more than make filing easier, they protect your deductions if HMRC ever asks.

Keep everything

Maintain rent schedules, bank statements, invoices, receipts, insurance schedules, service contracts, tenancy documents, and mileage logs. HMRC expects you to retain records for at least five years after the 31 January filing deadline for the relevant tax year.

Log repairs versus improvements

When you replace or refurbish, note why the work was needed, what was replaced, and whether specification increased. Keep quotes and invoices. The narrative helps demonstrate a repair rather than a capital improvement.

Domestic items file

For sofas, carpets, white goods and the like, save proof of the original item and the replacement to support a “like-for-like” claim under the replacement of domestic items relief.

Mileage and travel

Record date, journey purpose, start/end points, and miles. If you use the fixed-rate method, apply the HMRC rates correctly and consistently.

Cash basis or accruals

If you prefer accruals accounting, remember the cash basis is now default, so actively opt out on the return. Many landlords stick with cash basis for simplicity, but accruals can be preferable if you have large year-end bills or want finer matching of income and costs.

6. Deadlines & penalties you must not miss

Self-Assessment dates

Paper filing deadline is 31 October. Online filing is 31 January after the tax year end (e.g., 31 January 2026 for 2024/25). Payment is also due by 31 January, with “payments on account” due by 31 January and 31 July where relevant.

Penalties

File late and you face an automatic £100 penalty. At three months late, daily penalties accrue (up to £900), with further penalties at six and twelve months. Late payment also triggers penalties and interest. HMRC’s latest interest rate and penalty structures make lateness expensive, so plan ahead and avoid these.

60-day CGT rule

If you sell a UK residential property and CGT is due, report and pay within 60 days of completion. Don’t assume Self-Assessment will cover it. The 60-day return is separate.

Making Tax Digital (MTD) is coming

From 6 April 2026, landlords (and sole traders) with qualifying income over £50,000 must use MTD for Income Tax, keeping digital records and sending quarterly updates. The threshold is set to extend to lower income bands in later phases, so prepare your systems now.

7. Smart tax strategies (that stay within the rules)

Consider company ownership for new acquisitions

Companies can deduct finance costs in full, which may be attractive for geared portfolios. Balance that against Corporation Tax, personal extraction taxes, lender criteria, and extra admin. Incorporation of existing properties can be complex, so get advice before acting.

Use the property allowance where it helps

If gross rent is modest, the £1,000 property allowance can be simpler and tax-efficient. But you cannot claim it and actual expenses. Compare both and choose the better outcome each year.

Maximise your personal allowance and Marriage Allowance

Basic-rate couples can transfer 10% of the lower earner’s personal allowance (£1,260), saving up to £252 if conditions are met. Small planning steps, like allocating more rental income to the basic-rate spouse where ownership allows, can make a difference (take legal advice before changing title).

Keep an eye on losses

Rental losses usually carry forward against future profits from the same property business. In a tough year, for things like voids and big repairs, ensure the loss is recorded properly so it reduces future tax.

Use the replacement of domestic items relief correctly

Replace rather than “improve” where possible if you need the deduction now. If you choose to upgrade (say, a basic carpet to premium wool), expect to restrict the claim to the “nearest modern equivalent.”

Rent a Room Relief (if you take a lodger)

If you let a furnished room in your main home, you can earn up to £7,500 a year tax-free (£3,750 if shared). This sits outside your normal property business rules and can be a tidy way to help with mortgage costs without heavy admin.

Plan ahead for CGT

Line up paperwork early. Check if PRR applies and whether you qualify for any partial reliefs. Remember the 60-day reporting clock starts at completion.

8. Common mistakes that cost landlords money

Confusing repairs with improvements

Replacing a broken boiler with a similar model is a repair. Redesigning and upgrading the entire heating system is likely an improvement. Get the paperwork to tell the right story.

Double-counting the property allowance and expenses

You must pick one route for the year. Either the £1,000 allowance or your itemised costs.

Treating mortgage interest as a deduction (for individuals)

Since 2020, it’s a 20% tax credit, not a straight expense. Enter it correctly on your return.

Missing the 60-day CGT deadline

A frequent and unnecessary penalty. If you’re selling, plan the reporting before completion.

Forgetting payments on account

Many first-timers are surprised by the extra 31 January and 31 July instalments. Budget for them to avoid interest and penalties.

Not opting out of cash basis when accruals would suit better

Cash basis is now default, but accruals may give a fairer picture if you have significant prepayments or year-end bills.

Relying on outdated FHL rules

If you used to claim FHL advantages, note they were abolished from April 2025.

9. A quick pre-filing checklist

• Have you reconciled rents and deposits to your bank statements and tenancy records? August App helps you reconcile rents.

• Have you separated revenue repairs from capital improvements and documented why?

• Have you claimed replacement of domestic items correctly (and avoided first-time purchases)?

• Are your finance costs entered as a basic-rate tax reduction (if you’re an individual)?

• Have you chosen either the property allowance or itemised expenses?

• Do you need to report a property sale within 60 days?

10. How August can help

The right tools reduce friction and errors. Very soon, you will be able to use August to capture receipts the moment you spend, tag each cost to the right property, attach photos or PDFs to every transaction, log mileage for inspections. When MTD arrives for your income level, you’ll already be working digitally, so the quarterly update becomes a few clicks rather than a weekend lost in spreadsheets.

For extra peace of mind, cross-check your figures against HMRC’s Property Rental Toolkit before you file. HMRC publishes it to help reduce common mistakes.

Final word

Tax is not the enemy, it’s a system with rules. Learn the rules, keep crisp records, and use software that does the heavy lifting. Handle the basics well, and you’ll spend less time firefighting and more time growing the return on your properties, calmly, compliantly, and with fewer surprises from HMRC.

Disclaimer: This article is a guide and not intended to be relied upon as legal or professional advice, or as a substitute for it. August does not accept any liability for any errors, omissions or misstatements contained in this article. Always speak to a suitably qualified professional if you require specific advice or information.