Allowable Expenses

Allowable expenses are the costs you can offset against rental income to reduce your taxable profit. HMRC specifies which expenses qualify - not all costs associated with a rental property are deductible.

Expenses that are generally allowable: letting agent fees and management costs, property repairs and maintenance (not improvements), landlord buildings and contents insurance, ground rent and service charges, accountancy fees related to the rental business, advertising for tenants, legal fees for tenancy agreements (not purchase), travel to inspect or manage the property, and certain professional subscriptions.

Expenses that are not allowable: capital improvements (installing a new kitchen, adding a bathroom, converting a loft - these are capital expenditure not revenue), the cost of acquiring or disposing of the property, and, critically for landlords in personal name, mortgage interest above the basic rate tax credit.

The distinction between a repair (allowable) and an improvement (capital, not allowable) is important and sometimes contested. Replacing a like-for-like kitchen is typically a repair. Upgrading a basic kitchen to a high-specification kitchen is an improvement - only the equivalent repair cost may be allowable.

For limited company landlords, mortgage interest remains fully deductible as a business expense, which is one of the primary tax advantages of operating via a limited company compared to personal name after Section 24.