Taxes are primarily a means by which a government will fund its initiatives, but there are ways that the tax burden can be minimised for various members of society. Landlords are one such example, with a list of allowable expenses that can provide massive tax relief.
But what are these allowable expenses, and how are they claimed? In this article, we outline this kind of tax relief, including the process of claiming mortgage interest, replacing domestic items relief and more.
What are the landlord allowable expenses available?
Allowable expenses are a tax relief. Specific costs can be deducted by a landlord from their rental income, reducing the amount of tax they are required to pay. These expenses must be incurred wholly and exclusively for the rental business – meaning it cannot be split between business and personal expenses.
So, if something that you buy for your rental property goes towards maintenance and repairs, you can likely claim it as an allowable expense. For a more concrete idea of what counts as an allowable expense, take a look at the table below.
| Expense Category | Description | Notes |
| Repairs and Maintenance | Costs to maintain or repair the property. | Must be repairs, not improvements. |
| Management Fees | Fees to letting agents or property managers. | Includes tenant management and rent collection. |
| Mortgage Interest | The interest portion of mortgage payments. | Only the interest, not capital repayments. |
| Council Tax and Utilities | Council tax and utility bills are paid by the landlord. | Only if the landlord is responsible for payment. |
| Insurance Premiums | Buildings, contents, and liability insurance. | Must relate to the rental property. |
| Ground Rent & Service Charges | Leasehold ground rent and service charges. | Recurring charges for property upkeep. |
| Legal & Accounting Fees | Legal and accountancy costs related to rental business. | Excludes fees for buying or selling property. |
| Advertising Costs | Costs for advertising the rental property. | Includes online and print ads. |
| Replacement of Domestic Items | Replacing furniture or appliances. | Must be a like-for-like replacement. |
| Admin & Miscellaneous Costs | Costs like phone charges, stationary and office supplies. | Must be returned to the rental business. |
Why and how are allowable expenses claimed?
Allowable expenses exist to ensure that maintaining and managing properties is feasible. Without these deductions, the feasibility of properly running and maintaining a property rental business would be far lower.
Allowable expenses are claimed when landlords file their self-assessment tax return with HMRC. After reporting total rental income, landlords have an opportunity to deduct qualifying expenses from the income to calculate taxable net profit. To do this effectively, landlords are expected to keep all receipts, invoices and detailed records to support the tax relief claim.
Your guide to claiming allowable expenses
This section will revolve around breaking down the different expenses that are included within “allowable expenses”.
Claiming property maintenance and repairs
Claiming property maintenance and repairs as an allowable expense is very common among landlords. It’s estimated that the average UK landlord spends over £3,000 per year on general repairs and maintenance, with the most common fixes revolving around pest control and mould/dampness.
The following are examples of what can be claimed:
- General repairs and replacements – Fixing leaking pipes, repairing plumbing and fixing electrical faults.
- Appliance repairs and replacements – Replacing or repairing appliances like fridges, washing machines and cookers – so long as it’s a like-for-like replacement.
- Structural repairs – Repairing roofing tiles and leaks, cleaning/repairing blocked and broken gutters etc.
- Cosmetic repairs – Repainting walls and ceilings after tenant turnover, replacing worn out flooring, etc.
- Pest control – Removing pests such as rodents, a common issue faced by landlords throughout the rental period.
Management fees
Management fees cover services such as finding tenants, collecting rental income and handling day-to-day issues within the property. A landlord who employs a property management company can claim allowable expenses on the costs.
- Letting agent fees – Allowable expenses include fees paid for services like tenant sourcing, rent collection or property inspections. This typically ranges from 8% to 15% of the monthly rental income.
- Full property management services – Day-to-day services by the management company, such as overseeing repairs, handling tenant requests/issues and ensuring the property stays in line with legal compliance.
- One-off services – The cost of tenant referencing, tenancy agreement renewal and other specific property management tasks can be claimed as allowable expenses.
Mortgage interest
Only the interest element of the mortgage can be claimed as an allowable expense, as opposed to the entire mortgage payment. Since 2020, landlords no longer deduct mortgage interest directly from their rental income – instead receiving tax credit of up to 20% of their mortgage interest costs.
This allows landlords to lessen their taxable profits whilst protecting themselves against interest accruement.
Council tax and utilities
Landlords who pay council tax or utility bills can write them off as allowable expenses.
- Council tax – In situations where the landlords cover council tax on behalf of the tenants, they can claim tax relief.
- Utility bills – Utility costs for gas, electricity, water, internet and phone services can also be claimed as allowable expenses if paid by the landlord.
Insurance premiums
Insurance premiums that are related to the rental property can be considered as allowable expenses. The policies that are eligible go toward protecting the property itself, and its content.
- Landlord insurance – This covers the building, its contents, and liability insurance, protecting against claims by the tenants, or the costs of property damage.
- Building insurance – This type of insurance protects the structure from risks such as fire, floods and structural damage.
- Contents insurance – Contents insurance covers furniture and appliances if the property in question has been furnished.
- Landlord liability insurance – This protects the landlord in cases of tenant injuries, or accidents involving elements of the property.
Ground rent and service charges
Ground rent and service charges that landlords pay to maintain leasehold properties are classed as allowable expenses. They can be deducted from the rental income directly to reduce taxable profits.
- Ground rent – Ground rent is an annual charge that leasehold property owners pay to the freeholder for the land. Usually, this is a set amount payable on an ongoing basis as declared within the lease agreement.
- Service charges – These revolve around the fees that landlords pay to cover the maintenance and repair of communal areas, such as stairwells, roofs, gardens etc.
Legal and administrative expenses
Legal fees and administrative expenses incurred wholly and exclusively for the rental property can be claimed back on your tax return. This is due to legal fees being a potentially massive part of a landlord’s operating costs.
The types of legal fees that qualify for tax relief are:
- Eviction proceedings – Tenants have rights, and those rights can make the eviction process long and expensive.
- Drafting or amending lease agreements – Every time you put a new contract or agreement into writing, you have to pay.
- Debt collection – When debt has to be collected, you may be charged for the services.
- General legal advice – Fees for obtaining legal advice related to the day-to-day running of the rental business.
Legal fees that are related to buying or selling a property can also be claimed, but only for capital expense.
Administrative expenses incurred can be any of the following:
- Phone calls – Costs of phone calls made specifically for the rental business ,such as speaking with tenants or workers.
- Postage – The world is going digital not only due to convenience, but to also skip over the labour involved in distributing post, which in this case could be agreements, notices, etc.
- Office supplies – Supplies for your office, from which you conduct business relating to your rental property, can be claimed back.
- Travel costs – If you need to travel to and from your property for the sake of the property business, you can deduct the costs from your taxes.
Advertising costs
Advertising costs that are incurred by landlords marketing their rental properties are considered allowable expenses.
- Online listings – Many online property websites like Rightmove or Zoopla charge fees to advertise listed rental properties, and these fees can be deductible.
- Print advertising – Costs for placing ads within local newspapers and rental magazines.
- Professional photography – The quality of photographs goes a long way in attracting tenants.
- Signage – This is the cost for physical “to let” boards outside the property.
Replacement of domestic items
The replacement of domestic items relief will allow landlords to claim tax relief off the cost of replacing domestic items that have been provided for tenants – such as furniture, appliances and household goods.
Some examples include:
- Furniture – Sofas, tables, chairs, beds etc.
- Appliances – Fridges, washing machines and dishwashers.
- Others – Curtains, carpets, cutlery etc.
Bear in mind this expense follows the like-for-like replacement rule, meaning if you replace a piece of furniture like a sofa, it is only deductible if it’s the same type and quality.
Conclusion
All in all, landlords can take advantage of the numerous allowable expenses to reduce their tax liabilities. All reductions are made during the self-assessment tax return to HMRC. It’s important to ensure you understand what counts as an allowable expense ahead of time, and to keep the invoices/receipts for proof and use during your assessment.
FAQ: Revenue Expense vs Capital Expenses
Revenue expense and capital expenses are both similar in that you can claim tax relief from both, but the circumstances in which you can claim them are different.
Revenue Expense
Revenue expenses are tax deductible costs incurred in the management or maintenance of your rental property. They are classed as landlord allowable expenses as a result, and can be deducted immediately, reducing your overall taxable profits when it comes time to pay tax.
Examples of revenue expenses have been illustrated in the table above, but consider things such as maintenance and repairs, operational costs and the like.
Capital expenditure
Capital expenditure are costs that are allocated to improving a property, aiming to increase value, comply with updated regulations or extend its useful life. Despite being tax-deductible expenses, they are not claimed against your taxable rental income – but your capital gains tax bill.
The capital gains tax bill comes into play when you sell or dispose of an asset, such as property, that has increased in value since you acquired it. However, it only applies to a buy to let property, second home or investment property – not your main residential property.