Capital Expenditure vs Revenue Expenditure
Quick answer
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.
At a glance
- Revenue
- Deducted from rental profit now
- Capital
- Set against CGT on sale
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Open full guideWhy Capital Expenditure vs Revenue Expenditure matters for landlords
The test is whether you are restoring the property (revenue) or improving it beyond its original state (capital). Replacing a broken single-glazed window with a modern double-glazed one is usually still a repair because double glazing is now the standard equivalent; adding a conservatory is an improvement. Misclassifying capital as revenue is one of the most common triggers for an HMRC enquiry, so the safe habit is to document the before-and-after condition and reason for every significant spend.
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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 Allowances
Tax relief for capital spending on qualifying "plant and machinery". For a standard residential letting they are generally NOT available — furniture and appliances are covered instead by Replacement of Domestic Items Relief. Capital allowances mainly apply to equipment in the communal areas of some HMOs and to commercial property; the furnished holiday let regime that allowed them was abolished from April 2025.
Capital Growth
The increase in a property’s market value over time, as distinct from the rental income it produces. It is only realised (and taxed, via Capital Gains Tax) when the property is sold. Many landlords weigh capital growth against rental yield when choosing where and what to buy.
Furnished Holiday Let (FHL)
A short-let property meeting the FHL availability and letting tests (210 days available, 105 days actually let, etc.). Treated as a trade for tax purposes until 5 April 2025, with full mortgage interest deduction, capital allowances on furniture and fittings, and Business Asset Disposal Relief on sale. From 6 April 2025 the FHL regime was abolished by the Finance Act 2024: existing FHLs fall under standard property income rules and Section 24 mortgage interest restriction applies in full.
Interest-Only Mortgage
A mortgage where the monthly payment covers only the interest, leaving the original capital to be repaid at the end of the term. Most buy-to-let mortgages are interest-only because it maximises monthly cashflow and, historically, the tax treatment of interest. The capital must still be repaid eventually — usually by selling or remortgaging the property.
Allowable Expenses
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.
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).