Allowable expenses for landlords – what can you claim?

There are almost three million unincorporated private landlords in the UK and they earn an estimated combined annual income of more than £40 billion, according to HMRC.

Most landlords have one or a few rental properties and almost 90 per cent of them claim tax expenses.

Claiming tax expenses has become even more important in recent years, as landlords have faced significant price rises across the board.

Being able to claim tax expenses (known as ‘allowable expenses’) makes a big difference, because it helps to reduce landlord tax bills. So, what tax expenses can you claim if you’re a UK landlord and how do you go about it?

What are allowable expenses for landlords?

As the name suggests, allowable expenses are tax expenses that HMRC allows you to deduct from your taxable rental income. The more allowable expenses that you can deduct, the lower your taxable rental income and yearly tax bill.

For an expense to be allowable, it must result ‘wholly and exclusively’ from renting out your property. Personal costs can’t be claimed as an allowable expense. And where there’s mixed usage, for example, where you use your own mobile phone to contact tenants, you can only claim for the rent-related call costs or proportion of monthly charges.

Another example could be hiring a carpet cleaner. If you also use it to clean carpets in your own home, you can only claim half of the total costs as an allowable tax expense.

Read more: Tax on rental income – a landlord’s 6-step guide

Common examples of landlord allowable expenses

Allowable expenses for landlords can include:

• ground rents and service charges
• building, contents, and public liability insurance
• gardening and cleaning costs
• water rates, council tax, gas and electricity (if you pay them and not your tenant)
• letting agent fees/management fees
• legal fees for lets of a year or less, for example, when you seek legal advice about pursuing unpaid rent and renewing a lease if it’s for less than 50 years
• accountancy/bookkeeping fees
• direct costs, such as rent-related phone calls, stationery, and advertising for new tenants
• rent-related vehicle/fuel costs
• costs for getting rid of old items of furniture or electrical appliances

Property maintenance, repairs, and improvements

Maintenance (including redecorating between tenancies) and running repairs (minor repairs that are done while something is still being used) are allowable expenses. Replacing a toilet, washbasin, shower, or bath is allowable, because they’re repairs, but you can only claim for the cost of a like-for-like replacement.

So, for example, if the current market value of a faulty existing electric shower is £100 and you buy one worth £300, you can only claim £100 as an allowable expense.

The cost of adding an extension or converting a loft can’t be claimed as an allowable expense, because you’re improving the property and increasing its value (called making a ‘capital improvement’).

Later, you can claim capital expenses against capital gains tax if you sell the property, so keep accurate records of everything you’ve paid out.

What about mortgage payments?

Landlords can’t claim mortgage capital repayments as an allowable expense.

Previously, landlords could deduct mortgage interest and other finance costs (e.g. mortgage arrangement fees) from their rental income, which reduced their income tax bill. But the rules changed and now landlords receive a tax credit of 20 per cent instead.

Read more: What is Section 24? A guide for landlords

What is the property allowance?

If your allowable expenses are less than £1,000 a year, you may be better off claiming the property allowance, which is a £1,000 tax exemption available to those who earn rental income from property or land.

You can only claim one or the other, you can’t claim both. If you own a property with others, each can claim the £1,000 allowance against their share of the gross rental income.

What about replacing furnishings, furniture, or white goods?

Landlords can’t claim an allowable expense for replacing furnishings or equipment in their furnished or part-furnished rental properties. But the good news is you may be able to claim ‘replacement domestic items relief’ for replacing:

• curtains
• carpets
• sofas
• beds
• white goods
• crockery
• cutlery

Once again, the value must be similar. So, if you can replace a sofa like-for-like for £200 but you buy one for £400, you’re only allowed to claim allowable expenses of £200.

What about when you buy a property?

You can’t claim allowable expenses for your costs or expenses when buying a property because these are treated as part of the purchase price.

You should keep details, such as invoices and receipts, for these costs:

• purchase price
• stamp duty
• legal fees
• building survey costs
• independent inspection charges
• auctioneer’s costs if you bought by auction

This is because you can claim them against your capital gains tax liability if you later sell the rental property.

How to claim landlord allowable expenses

Within the Self Assessment: UK property (SA105) supplementary page, which you file with your SA100 main tax return, you summarise the allowable expenses you want to claim.

Your total allowable expenses will be deducted from your taxable rental income, with other reliefs and allowances also taken into account. HMRC will then tell you how much tax you owe.

You’re not required to submit proof of your expenses when you file your annual Self Assessment tax return, but HMRC can later request it, so keep hold of invoices and receipts.

It’s best to log allowable expenses you plan to claim into a spreadsheet or accounting software as they arise, because it will make managing your expenses and completing your Self Assessment tax return much easier.

About GoSimpleTax

GoSimpleTax is a solution for landlords, the self-employed, sole traders, freelancers, and anyone with income outside of PAYE.

You can use the software to record income, expenses, and tax submissions all in one. It will also provide you with hints and tips that could save you money on allowances and expenses you may have missed.

Do you have any unanswered questions about allowable expenses as part of your landlord tax return? Let us know in the comments below.

Useful guides for landlords

• Buy-to-let mortgage affordability – a guide for landlords
• Assured shorthold tenancy agreement: what do landlords need to know?
• Property inspection landlord checklist – how can you prepare?
• Do landlords need contents insurance?