Allowable Expenses
Quick answer
The day-to-day running costs a landlord can deduct from rental income before tax. They must be wholly and exclusively for the letting — letting agent fees, repairs and maintenance (not improvements), landlord insurance, ground rent and service charges, accountancy, and utility or council tax you pay. Mortgage interest is handled separately as a 20% tax credit under Section 24, not as an expense.
At a glance
- Test
- Wholly & exclusively for the letting
- Excludes
- Capital improvements and mortgage capital
- Mortgage interest
- Separate 20% tax credit (Section 24)
Full guide
Read the complete landlord guide on Allowable Expenses
Deadlines, fines and step-by-step compliance in our in-depth resource.
Open full guideWhy Allowable Expenses matters for landlords
Getting allowable expenses right is the single biggest lever on a landlord’s tax bill after mortgage interest. The classic error is deducting an improvement (a new extension, a better kitchen) as a repair — HMRC treats that as capital, not an expense, so it belongs against Capital Gains Tax on sale, not against rental income now. Keep every receipt and label each cost as repair or improvement at the point you spend it, because reconstructing it a year later is where landlords lose deductions and invite an enquiry.
Worked example
Priya lets a flat for £14,400 a year. In one tax year she spends £600 on a boiler service and repairs, £900 in letting-agent fees, £320 on landlord insurance and £180 on her accountant — £2,000 of allowable expenses that reduce her taxable rental profit straight away. She also spends £4,000 fitting a new, upgraded kitchen in place of a dated one. That is where it gets nuanced: the cost of a like-for-like replacement is a repair, but the upgrade element is capital, so only the equivalent-standard replacement cost is deductible now and the improvement waits for CGT on sale. Splitting that £4,000 correctly is worth hundreds in tax.
Illustrative scenario based on real UK landlord casework patterns. Names and addresses are fictitious.
Common Allowable Expenses mistakes UK landlords make
- Claiming an improvement (new kitchen, extension, first-time double glazing) as a repair — it is capital, not a revenue expense.
- Deducting mortgage capital repayments; only interest counts, and only as a 20% tax credit under Section 24.
- No receipts or labels — reconstructing repair-vs-improvement a year later loses deductions and invites an enquiry.
What to do this week
- Keep every invoice and label each cost repair or improvement when you spend it.
- Record the property’s before-and-after condition for any significant works.
- Track mortgage interest separately for the Section 24 credit, not as an expense.
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Official sources
LetCompliance editorial reviews this entry every quarter against the sources above. Always confirm specific duties with a qualified solicitor or your local council.
Related terms
Capital Expenditure vs Revenue Expenditure
The line that decides whether a cost reduces your rental profit now or your Capital Gains Tax later. Revenue expenditure (repairs, maintenance, replacing like-for-like) is deducted from rental income in the year you spend it. Capital expenditure (improvements, extensions, first-time installation of something new) is added to the property’s cost base and only counts against CGT when you sell.
Mileage Allowance
A simplified way to claim the cost of driving for your lettings business: 45p per mile for the first 10,000 business miles in a tax year and 25p per mile after that. You claim either mileage OR the actual running costs of the vehicle, not both, and you must keep a log of business journeys (inspections, repairs, viewings).
Replacement of Domestic Items Relief
The tax relief that lets landlords deduct the cost of replacing furnishings and appliances in a let property — beds, sofas, carpets, curtains, white goods, crockery. It replaced the old Wear and Tear Allowance in April 2016. It covers the like-for-like replacement cost only, not the first-time purchase of an item and not any improvement element.
Accelerated Possession
A fast-track court procedure used under a Section 21 notice in England and Wales. Abolished for new claims from 1 May 2026 because Section 21 no longer exists. Possession is now pursued under Section 8 using a specified ground.
Accidental Landlord
Someone who ends up letting a property without having planned to be a landlord — for example after inheriting a home, moving in with a partner, struggling to sell, or being relocated for work. Accidental landlords have exactly the same legal duties as professional ones, which is where problems usually start.
Additional Licensing
A discretionary HMO licensing scheme a council can introduce under section 56 of the Housing Act 2004 to cover smaller HMOs that fall below the mandatory threshold of five or more occupants in two or more households. (The old three-storey condition was removed on 1 October 2018 — mandatory licensing now applies regardless of how many storeys the property has.) It is separate from selective licensing (which covers all rented homes in a designated area, not just HMOs). Operating an unlicensed HMO where additional licensing applies is a criminal offence with civil penalties up to £30,000 and exposure to a Rent Repayment Order of up to 24 months’ rent.