Landlords may deduct allowable expenses from rental income when calculating the amount of profit that is taxable as a sole trader. (Note the rules for limited companies are different).
Allowable expenses must be wholly and exclusively for the purposes of renting out the property.
Examples of allowable expenses
- General maintenance and repairs to the property, but not improvements (such as replacing a laminate kitchen worktop with a granite worktop)
- Appliances, bathroom fittings, carpets, curtain poles, doormats etc
- Furniture and furnishings
- Water rates, council tax, gas and electricity
- Insurance, e.g. landlords’ policies for buildings, contents and public liability
- Costs of services, including the wages of gardeners, cleaners, fees for inventory services
- Letting agent fees and management fees
- Legal fees for lets of a year or less, or for renewing a lease for less than 50 years
- Accountant’s fees, e.g. for preparing your accounts and tax return
- Rents (for sub-letting), ground rents and service charges
- Direct costs such as phone calls, stationery and advertising for new tenants
- Vehicle running costs (only the proportion used for your rental business) including mileage rate deductions for business motoring costs
What are not allowable expenses
- Capital expenditure, eg the costs of buying the property. They are relevant when calculating future capital gains tax.
- The full amount of the mortgage payment – only the interest element of your mortgage payment can be offset against your income by means of a 20% tax credit.
- Private telephone calls – you can only claim for the cost of calls relating to your property rental business
- Personal expenses – landlords can’t claim for any expense that wasn’t incurred solely for the property rental business
Further reading
HMRC guidance – gives further detail on allowable expenses for landlords.
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