Allowable expenses
Allowable expenses are costs a landlord can deduct from rental income when calculating taxable profit for UK income tax. Reducing taxable profit reduces the tax bill, if annual rental income is £18,000 and allowable expenses total £5,000, income tax is charged on £13,000 rather than £18,000. HMRC's guidance sets out the governing test. An expense must have been incurred "wholly and exclusively" for the purpose of renting out the property. Costs with a dual personal and business purpose are either disallowed entirely or claimable only in proportion to their rental use.
What qualifies as an allowable expense
HMRC groups qualifying costs into broad categories. The main ones are:
repairs and maintenance (restoring the property to its previous condition, not improving it)
letting and management fees - Use the property management fees calculator to compare the full annual cost of agent management against self-managing.
landlord insurance premiums
professional and accountancy fees relating to the rental business
advertising and tenant-finding costs
utility bills and council tax paid by the landlord
service charges and ground rent on leasehold properties
administration costs such as stationery and telephone use attributable to the rental business.
For furnished properties, Replacement Domestic Items Relief allows the cost of replacing furniture, white goods, carpets, and appliances on a like-for-like basis to be deducted in the year of replacement. Initial purchase costs of those items are not allowable, only replacements qualify. For the full list of what you can claim, and the rule that governs each category, see our complete guide to allowable expenses for landlords.
Mortgage interest: the Section 24 restriction
Since April 2020, residential landlords cannot deduct mortgage interest directly from rental income. Instead, they receive a tax credit equal to 20% of finance costs paid, the basic rate of income tax. This is significantly less valuable for higher-rate taxpayers than the old system. Landlords who hold rental properties through a limited company are not affected and can still deduct finance costs in full. The mortgage capital repayment is never deductible regardless of ownership structure.
What landlords cannot claim
Capital expenditure, work that improves the property beyond its original condition, such as extensions, loft conversions, or significant specification upgrades, is not deductible from rental income. It may however reduce a future capital gains tax liability. Personal expenses, initial property purchase costs, and any fines or penalties are also excluded. The companion definition of non-allowable expenses covers this in full.
The £1,000 property allowance
Landlords with gross rental income below £1,000 in a tax year do not need to declare it. Those above £1,000 can choose to claim the flat £1,000 allowance instead of itemising actual expenses, but for most landlords with a mortgage, agent fees, or repair costs, itemising actual expenses will produce a significantly lower tax bill.
Record-keeping and Making Tax Digital
HMRC requires expense records to be kept for at least five years after the relevant self-assessment filing deadline. For landlords within scope of Making Tax Digital, from April 2026 for those with gross income over £50,000, records must be maintained digitally using HMRC-compatible software and submitted quarterly.
In our experience supporting self-managing landlords, the most common tax error is not under-claiming on large costs but failing to log small recurring ones, including safety certificate renewals, advertising spend, and travel, throughout the year. August's expenses tracking feature logs and categorises costs against each property in real time, generating the records HMRC expects and the summary data needed for a self-assessment return or MTD submission. August is recognised by HMRC for Making Tax Digital for Income Tax, covering UK property income.Landlords who keep accurate records throughout the year will also find it easier to manage their landlord accounting without reconstructing figures at year end.
For the full list of qualifying expenses by category, including worked examples, void period rules, HMO-specific costs, and the correct treatment of pre-letting expenditure, see our complete guide to allowable expenses for landlords.
Frequently asked questions
Can landlords claim mortgage interest as an allowable expense?
Not as a direct deduction from rental income. Since April 2020, residential landlords receive a 20% tax credit on finance costs instead. Higher-rate taxpayers receive less relief than under the old system. Landlords who own properties through a limited company can still deduct finance costs in full.
What is the difference between a repair and an improvement for tax purposes?
A repair restores the property to its previous condition and is fully deductible. An improvement that adds to the property's value or significantly enhances it beyond its original specification is capital expenditure and cannot be deducted from rental income. The distinction matters most when refurbishing kitchens, bathrooms, and heating systems, upgrading specification takes the work into capital territory.
Can landlords claim expenses before the first tenant moves in?
Generally not. Pre-letting costs such as decorating, replacing carpets, or major repairs to make a property habitable are considered capital costs. Once the property is let and a rental business is under way, subsequent repairs and maintenance qualify as allowable expenses.
