What are allowable expenses?

accounts with pen and calculator

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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