Allowable expenses for landlords: what can you deduct from your income?
If you receive income from letting out a property, it’s likely that you'll have to file a Self Assessment tax return, declare the taxable profit you made on your property income and pay Income Tax on that figure every year.
When filing your tax return, there are a number of allowable expenses that you may be able to deduct from your income in order to work out your taxable profit. This guide explains the different types of deductions you can make and which types of property they apply to.
Different types of property income
The allowable expenses you can deduct from your income will vary according to your circumstances and the type of property you earn the income from. For example, the amount you can deduct for mortgage interest may differ depending on whether your property is a residential let or a non-residential let, such as an office or factory.
There are also specific rules about paying tax on property income if:
- you let out a room in your home
- your property is a furnished holiday let
- you live abroad but receive income from a property in the UK
- you live in the UK but receive income from a property abroad
The information in this guide applies to landlords who live in the UK and who receive income from property that’s located in the UK.
What can you deduct?
You can deduct certain expenses from your property income when you work out your taxable profit, as long as the expenses were incurred wholly and exclusively for the purposes of letting out a property from which you earned income. Types of expenses you may be able to deduct include:
- mortgage interest
- maintenance and repairs to your property
- water rates, council tax and utilities such as gas and electricity
- relevant insurance policies, such as buildings, contents and public liability insurance
- costs of services relating to the property, such as payments to gardeners and cleaners
- letting agent and management fees
- accountant fees
- legal fees for letting periods of a year or less during the tax year
- legal fees for renewing a lease for fewer than 50 years during the tax year
- rent (if you’re sub-letting), ground rent and service charges
- marketing costs such as phone calls, stationery and advertising for new tenants
- the proportion of vehicle running costs used for the property rental
More information about which expenses landlords can and can’t deduct from their income when working out their taxable profit is available on the government’s website. If you’re in any doubt about what you can deduct, we recommend that you speak to an accountant.
If you earn property income from letting out a non-residential property (e.g. an office), you can deduct the full amount of interest on any mortgage you’ve taken out on that property when you work out your taxable profit.
If your property income is from letting out a residential property that isn’t a furnished holiday let, you can usually deduct 20% of the interest (equivalent to the basic rate of Income Tax) from your income when you calculate your taxable profit. This means that if you pay £200 in interest, you will usually be able to deduct £40 from your income.
If you increase a mortgage loan on your property, you may also be able to deduct the interest on the additional loan from your income. More information about handling expenses for an increased mortgage is available on the government’s website.
Maintenance and repairs costs
In most cases, you can deduct the costs of repairs to your property from your income when you work out your taxable profit. HMRC usually defines a repair as something that restores the repaired item to its original condition. You shouldn’t, however, deduct the cost of ‘capital improvements’ from your income. HMRC usually defines a capital improvement as something that alters or improves the item.
Some examples of repairs (as opposed to capital improvements) might include:
- replacing tiles that were blown off the property’s roof by a storm
- replacing the property’s broken boiler with an equivalent model
- redecorating the property to restore it its original condition
You can find more examples of typical repair costs on the government’s website.
If you have an insurance policy that covers the cost of some repairs to your property, you can only deduct the additional costs you incur for repairs that aren’t covered by the policy when you work out your taxable profit.
Costs for replacing furnishings or equipment in the property can’t be deducted from your income when you calculate your taxable profit, but they may qualify for Replacement of Domestic Items relief.
Claiming ‘part expenses’
If you incur a ‘part expense’ - an expense that’s only partially for the purpose of letting out a property - you can deduct the part relating to the property when you work out your taxable profit, as long as that part of the expense is wholly and exclusively for the purpose of letting out the property.
For example, if you purchase a tin of paint and use half of it to repaint a damaged wall in a property you let out, and the other half in your own home, you can only deduct half the cost of the paint from your income when you come to calculate your taxable profit.
You can find more examples of part expenses on the government’s website.
Calculating your allowable property expenses
If you’re a UK-based landlord and earn income from property in the UK, you can use our allowable expenses tool to calculate the amount you can deduct when you work out your taxable profit.
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