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We explore 5 of the main categories of allowable expenses that landlords need to be familiar with to run successful buy-to-let property.
Written by
Ben Luxon
PUBLISHED ON
Oct 25, 2024
Over the years, the UK government has introduced alterations to buy-to-let tax relief, such as restricting financial deductions like mortgage interest in the section 24 tax changes. These changes have affected the allowable expenses for rental income and made it increasingly hard to operate a profitable buy-to-let portfolio.
Because of this, it's more important than ever for landlords to have the right tools and knowledge to identify and accurately track all of the operating costs that are considered allowable expenses for landlords.
In this article, we outline the five main categories of allowable expenses for rental income and what landlords need to know in order to accurately claim every allowable tax deduction at tax time. Missing any of the expenses outlined in this article could cost you hundreds of pounds.
Allowable expenses for rental income are bracketed into five main categories according to the HMRC. For an expense to be claimable against your buy-to-let income it must be used ‘wholly and exclusively’ for the management of your property.
In this context wholly and exclusively means that the expense cannot also be used for personal or other business use. For example, if you buy office equipment and us it for personal use it would no longer qualify as an allowable expense for landlords.
The main five categories for rental income allowable expenses are:
Many costs incurred when running a buy to let property, however, are not allowable expenses. This includes:
Upgrade your rental accounting systems and never miss an allowable expense again. Create your free Landlord Studio account and make digital record keeping easy, stay compliant with changing regulations, and increase your buy-to-let profitability.
Office costs include expenses like your phone, broadband bills, office equipment or other administrative expenses. However, it’s important to note that only the portion of the expense that is used for your rental business is an allowable expense.
Some travel costs related to the management and running of your buy to let business are allowable. For example, you can claim petrol, vehicle tax, insurance and repairs, and bus and train fares. Again though, you can only claim for the travel associated with running and managing your business. If you have a vehicle that you use to get to and from your rentals 10% of the time you can claim 10% of the related expense. You can’t claim private travel or regular travel.
Costs associated with marketing your property during vacancies such as letting agents, photography, creation of virtual tours and videos and other marketing material.
The fees that you pay to professionals for services such as accountancy, bookkeeping, interior design, etc are all allowable expenses. You can also claim for expenses related to legal services such as a solicitor in connection to debt collection, evictions or some other necessary legal service.
You can claim your insurance costs as allowable buy-to-let expenses. The main examples of this include building and contents insurance, vehicle cover for your business vehicle.
If you hire a specialist to carry out work on your properties, you can claim their charges against tax. Include charges from builders, plumbers, electricians, decorators, kitchen fitters, gardeners, cleaners, window cleaners, and carpet fitters.
However, you can only charge for work that is classed as repairs. Any work to improve the property is not allowable.
Repairs to your property are an important and potentially large allowable expense for landlords. It’s important to note, that whilst we have bracketed repairs and replacements together, the HMRC makes a clear distinction between the two.
A repair is any work undertaken that returns the property to its original condition. Examples of this include repainting the property between a tenancy, mending broken appliances or plumbing, and repairs to structural damage. Importantly, these repairs are only classified as such if they do not increase the value of the property.
Learn more about property repairs and maintenance →
A replacement on the other hand is when an asset is not repairable and is replaced with an item of equal value. For example, you might replace curtains, light fixtures, or the carpet after several years to return the property to its original condition. Again, any increase in value is not an allowable expense.
When making claims for repairs you can also include the cost of materials and any fees paid to specialists that carry out the work.
Find out more about fair wear and tear and the replacement of domestic items relief.
There are many associated costs with owning and running a buy-to-let property. Some of these include things like ground rents, council tax, utility bills, etc. If you are responsible for paying these costs then they are allowable expenses. If however, your tenants are responsible for these expenses you can only claim for any period where the property is vacant.
If you need someone to carry out a regular service for you e.g. cleaning, we recommend that you pay a fixed rate for that service and do not provide any tools or materials so that they can be treated as self-employed.
However, if for example, you employ a cleaner for one hour a week and provide all the materials, then that person is probably an employee. Be aware, that if you do employ an employee, you need to ensure that you comply with Employment Regulations including Working Time Directive, National Minimum Wage, Health and Safety and PAYE/NIC.
Any other expenses incurred wholly and exclusively for the property business can be claimed. For example, the licence fee for Houses of Multiple Occupation (HMO) is an allowable expense for landlords.
Any costs associated with restoring a property to bring a property up to a habitable standard and make it rentable cannot be deducted. This includes things like the purchase costs and repairs, conversions, or other building work that need to be completed before the property is in a rentable state.
Any work done to a property that improves the property’s overall value is counted as an improvement and is not an allowable expense. For example, if you converted the garage to another bedroom this would be an improvement.
Or if the appliances in the kitchen were broken and you replaced them with better more expensive appliances, this also would count as an improvement and only a partial amount of the cost (the cost of a like replacement) would be an allowable expense. As an example, if an appliance cost £2,000 originally and you replaced it with one that cost £3,000 you would only be able to deduct the original cost of £2,000.
In the past, you were able to deduct the whole of the interest payments on buy-to-let mortgages or other loans. This is no longer true. This buy-to-let tax relief has been phase out and replaced with a tax credit allowing you to claim back 20% of the annual interest payments as a tax credit.
Find out more about the section 24 tax changes here.
Distinguishing between capital and revenue expenditure is pivotal when dealing with property investments. However, the line between capital and revenue expenditure isn't clear-cut. For example, the expense of purchasing or enhancing a property, like adding an extension, doesn't qualify as revenue expenditure against your property income. But, if you simply redecorate a property before renting it out, this does fall under revenue expenditure.
If you acquire a property at a reduced price due to its poor condition and then undertake significant renovations, that expense is likely seen as capital expenditure. Recording and holding receipts for these expenses is crucial because most capital expenditures can be reclaimed in part Capital Gains Tax relief upon selling the property.
(These are not available on residential lettings apart from furnished holiday lets)
Whilst structural works cannot normally be claimed, capital allowances are available on the purchase of fixtures, plant and machinery.
Examples of expenditures eligible for Annual Investment Allowance (not for residential properties) are as follows:
The list is not exhaustive and you should obtain further advice from us, particularly if your expenditure is over the annual limit.
If you sell an asset on which you have previously claimed Capital Allowances, the proceeds are taken into account and may create an additional income charge.
Where a residential property is not a Furnished Holiday let or no Rent a Room relief is claimed, the expenditure on replacing items of furniture and white goods will be allowed as an expense less any proceeds on the disposal of the item being replaced. The cost of assets that are not replacements is not allowed as an expense.
For more on claiming replacement relief, read our article here.
If the property is used for private purposes, this is most often the case for furnished holiday lettings or if you’re not claiming Rent a Room relief, any claimed expenses must be restricted to reflect its private use.
Expenses related to the period of your prior occupation in the property cannot be claimed. For example, any maintenance done before the initial letting is considered private. Conversely, if, for example, you paid an annual insurance premium on April 1st but left the property intending to let it by the following October 1st, you can claim half of the insurance premium, even though it was paid during your occupancy period.
When you add up all of your allowable expenses for the tax year, you put the total amount on your Self-Assessment tax return. At this stage, you don’t need to include receipts, but it’s still important to keep accurate records as, should the HMRC later ask you for evidence, you could be fined for submitting incorrect information.
Using software like Landlord Studio you can easily digitise receipts at the point of sale and securely store them in our secure cloud server attached to the entered expense.
Learn more about how you can save time and maximise deductions at tax time with Landlord Studio property management and accounting software →
Generally speaking, you should keep all of your receipts for six years. However, you don’t need to keep the original copy, as the HMRC allows digital copies. Keeping track of six years worth of paper receipts can be challenging, not to mention the space they take up. Receipts can very easily get lost or fade beyond recognition.
This is another reason to ensure the income and expense tracking software you employ allows you to easily digitise receipts. The HMRC can investigate your property finances at any time within these six years.
For more information on how to claim your landlord allowable expenses, including the deadline for claiming, you should visit the GOV.UK website.
This is by no means a definitive list of not allowed and allowable expenses. However, we have outlined and detailed the larger more major expenses that many landlords are unaware of.
It is important to carefully and accurately track all of your expenses with a proper system such as Landlord Studio. Tools like Landlord Studio will enable you to keep detailed and up-to-date digital records of all the allowable expenses related to your buy-to-let property and stay compliant with changing tax regulations like MTD.
Not only will this enable you to maximise your end-of-year claimable expenses, increasing your property’s overall profitability, but Landlord Studio’s professional reporting features can also give you a more nuanced and detailed overview of your rental property portfolio’s finances. Additionally, with features such as automated rent reminders, tenant invoicing, document storage, and a calendar with personal reminders it’s easier than ever to manage tenants and stay on top of important tasks, such as property inspections, and safety certification renewals.
On a final note, with the MTD changes coming into effect in 2026 all landlords earning above the $50,000 threshold will need to be use software to keep digital records in order to stay compliant with the HMRC.
Create your free Landlord Studio account today and get ahead of the curve. Streamline your income and expense management and keep tax compliant digital records.
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