Non-Allowable Expenses

Non-allowable expenses are costs you cannot deduct from your rental income when working out taxable profit for your rental business. They are the opposite of deductible expenses or day-to-day revenue expenses.

From a landlord’s perspective, the main non-allowable items are:

Capital improvements – for example an extension, a full new kitchen where you upgrade rather than replace like-for-like, or structural alterations. These are capital costs, relevant for future capital gains, not yearly profit.
Personal and mixed-use costs – any private element of motoring, phone, home office or travel that is not wholly and exclusively for the private tenancy.
The capital element of buy to let mortgage repayments, only interest is potentially deductible, and even that is now restricted to a tax credit rather than full deduction.
Fines and penalties – for example civil penalty notice amounts, which HMRC will not treat as an allowable expense.

Under the Renters’ Rights Act, higher rental standards, fit for human habitation, Awaab’s Law duties and energy efficiency rules (including MEES and Higher rate efficiency standards (HRAD)) will often require a mix of revenue repairs and non-allowable capital upgrades. You cannot simply re-badge non-allowable spending as “fees” to tenants – that would usually fall foul of the permitted payments and prohibited payments rules. Also see Allowable Expenses.