Allowable Expenses for Landlords: What You Can Claim Against Rental Income

In the UK, it is a general rule that as a landlord, you are only taxed on your net rental profits rather than your total rental earnings. 

You can calculate your net rental profits through this formula:

Net Rental Profit = Gross Rental Income – Allowable Expenses

It is crucial to know exactly which costs you can legally claim in order to reduce your tax bill, while also staying compliant with HMRC rules.

This guide breaks down everything you need to understand, including:

• What counts as a legitimate business expense
• How mortgage interest relief works today
• The key difference between repairs and improvements
• Essential recordkeeping requirements
• Tax implications when selling your rental property

There has been a massive increase in the HMRC property tax investigations, so a proper expense claim has never been more important. This guide will help you understand how to maximise your deductions correctly. Let’s begin with the fundamentals – what exactly counts as an allowable expense?

Let’s begin with the fundamentals – what exactly counts as an allowable expense?

What Counts as Allowable Expenses?

Allowable expenses are classified as your day-to-day costs that are incurred “wholly and exclusively” for running your rental business. HMRC permits these deductions from your rental earning to calculate your taxable profit.

Some key principles to classify your allowable expenses are:

• Must be business-related (not personal)
• Includes revenue expenses (not capital improvements) 
• Requires proper documentation

Examples of these expenses may include:

• Property maintenance
• Letting agent fees
• Landlord insurance

But beware: Some costs like property purchases or major renovations do not qualify as allowable expenses.  HMRC is strict about the “wholly and exclusively” rule – mixing personal and business use can invalidate your claims.

Pro tip: When in doubt, ask “Is this expense purely for my rental business?” If not, it likely isn’t allowable.

Common Allowable Expenses for Landlords

Here’s a detailed breakdown of expenses you can claim to reduce your taxable rental income:

Important: Always keep receipts for at least 6 years. Mixed-use expenses (part personal/part business) must be apportioned.

Special Rules for Claiming Deductions

While many expenses can be deducted from your rental income, HMRC applies specific laws to certain scenarios. Understanding these limitations will certainly help you claim correctly and avoid disputes.

Repairs vs. Improvements

HMRC has set rules to distinguish between repairs (fully deductible) and improvements (capital expenses). Repairs are done to restore the property to its original condition (i.e. repainting the walls or fixing a broken boiler). Whereas, improvements are done to enhance the property beyond its original state. 

Examples of some improvements could be installing a new kitchen or adding an extension to the house. These are not immediately deductible. Instead these costs may qualify for Capital Gains Tax relief whenever you sell. 

Read more on Landlord Capital Gains Tax Relief

What Counts as a Capital Improvement?

• Structural additions (extensions, loft conversions)
• Upgrading original features beyond their initial standard
• Installing systems that didn’t previously exist

Below-Market Rent Arrangements

If you’re renting out a property to a family member or friend at a rent below the market rate, HMRC has special rules to stop people from claiming large expenses to generate artificial losses (for example, to reduce their overall tax bill).

• In these cases, you can only deduct allowable expenses up to the amount of rent you actually receive.
• That means: You can’t claim a loss on paper if you’re charging below-market rent — you can only offset up to what you earn.

Private Use Considerations (e.g. Holiday Homes or Mixed-Use Properties)

If you are using your property for personal use only or as a holiday home, HMRC requires you to:

• Track how many days the property is used for personal vs. rental use
• Split the expenses accordingly (e.g., if used 60% for renting, only 60% of bills like utilities or mortgage interest can be claimed)
• Only claim expenses for the rental portion

Mortgage Interest and Finance Costs

Following these deduction rules, it’s critical to understand how financing costs are now treated differently under HMRC’s current system.

From April 2020, as a landlord, you can no longer deduct mortgage interest from your rental income to reduce taxable profits. Instead now you can receive a 20% tax credit on your finance costs.

What Qualifies as Deductible Finance Costs?

You can claim the tax credit on:

• Buy-to-let mortgage interest
• Loan interest for property repairs/improvements
• Fees for arranging or refinancing mortgages

Tax Impact:

The new system significantly changes how different taxpayers benefit:

• Basic-rate taxpayers (20%): The tax credit fully offsets your liability on finance costs (e.g., £10,000 interest = £2,000 credit).
• Higher-rate taxpayers (40%): You lose half your relief compared to the old system (now only 20% back instead of 40%).
• Additional-rate taxpayers (45%): Face the biggest reduction in relief.

Recordkeeping Requirements for Landlords

It is strongly recommended that you keep proper documentation for claiming your expenses and complying with HMRC regulations. Here what you need to maintain:

Essential Documents to You Need To Keep

• Receipts & invoices for all repairs, maintenance, and services
• Mortgage interest statements and loan documentation
• Tenancy agreements and rental income records
• Utility bills & council tax payments (if paid by you)
• Insurance policies and renewal documents
• Professional fees (accountant, legal, letting agent)

Storage Best Practices

• Maintain both digital and physical copies where possible
• Organise by tax year for easy retrieval
• Use accounting software to track income/expenses automatically

Making Tax Digital (MTD) for Landlords

• MTD for Income Tax will take effect from April 2026 for landlords with gross income over £50,000.
• This requires quarterly digital submissions via approved software.
• Even if it is not yet mandated, adopting digital records now eases future compliance.

Retention Period: Keep records for at least 6 years after the relevant tax year.

Pro Tip: it is recommended that you set up a dedicated email folder and filing system exclusively for rental documents to stay organised year-round. 

How Long Should You Keep Tax Records?

As a landlord, you must retain all your tax-related documents for at least 5 years after 31^st January submission deadline for each tax year. 

For example, if you have filed your tax return for the year by 31^st January 2025 for the year 2023/24, then you must save the record until 31^st January 2030. This timeline has been set by HMRC to avoid any claims and discrepancies.

Special Cases for Property Sales

There are certain special cases in which the timeline is different for record keeping. For instance, In the case of Capital Gains Tax (CGT), all records must be kept at least 6 years after the tax year of disposal.

Such record may include:

• Purchase/sale contracts
• Improvement costs (to calculate gain)
• Fees from property transactions

Why Proper Record Keeping Matters

Maintaining complete and organised tax records:

• Ensures you can substantiate claims if HMRC chooses to enquire
• Helps accurately calculate capital gains when selling
• Provides evidence to support tax return filings
• Protects you against potential penalties for inadequate documentation

Storage Tip: Try to scan physical documents and use cloud storage with date organisation for easy access.

Tips for Staying Compliant as a Landlord

• Use a specialist property accountant – essential for multiple properties or limited companies
• Update records weekly/monthly – don’t wait until tax year end
• Digitize receipts immediately – use scanning apps like Receipt Bank
• Track mileage automatically – apps like MileIQ log property visits
• Use landlord accounting software – Landlord Studio, QuickBooks or FreeAgent
• Separate business/personal finances – Use a dedicated landlord bank account
• Review mortgage interest annually – optimiae for 20% tax credit
• Plan major works timing – align repairs with your tax year boundaries
• Subscribe to HMRC updates – key for MTD changes from April 2026
• Do quarterly tax checkpoints – spot issues early
• Keep CGT records for 6+ years – even after selling properties

Pro Tip: It is recommended that you set up an automated expense tracking, which will help you save hours at year-end!

Maximise Your Rental Property Profits

It is important that you understand allowable expenses, as they will help you to reduce your taxable income while being HMRC-compliant. You can keep most of your rental profits if you claim legitimate costs-from repairs to mortgage interest.

As a landlord, you should stay proactive in:

• Organised recordkeeping (digital tools help!)
• Regular tax planning (not just year-end)
• Staying updated on rule changes (regularly check HMRC Website)

Let Heighten Accountants Simplify Your Rental Finances

Our specialist team helps landlords:

• Maximise deductions – We ensure you claim every allowable expense
• Avoid HMRC pitfalls – Proper guidance on repairs vs improvements, mortgage relief, and more
• Save time – We handle recordkeeping, filings, and MTD compliance

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Book a no-obligation consultation to discuss your property portfolio