The basic rule for property income is the same as the basic rule for self-employment: a cost is deductible if it’s incurred wholly and exclusively for the purposes of the property business. That single phrase, lifted from ITTOIA 2005 s272, is what every category below is testing for.
The categories that almost always work
Letting agent and property management fees
Fees paid to a letting agent — finder’s fees, ongoing management fees, tenancy renewal fees — are deductible. So are fees paid to a separate property management company.
Repairs and maintenance
Putting things back to working order: fixing a leaking tap, replacing a broken boiler, repainting after wear and tear, fixing a broken window, repairing a roof. These are revenue expenses and deductible in the year they’re incurred.
The line between a “repair” and an “improvement” is the single biggest source of error in landlord returns. We come back to this below.
Insurance
Buildings insurance, contents insurance (if you let furnished), public-liability insurance, rent guarantee insurance, legal expenses cover for landlords — all deductible.
Council Tax and utilities (when you pay them)
Where you pay these rather than the tenant — for example during a void period, or in an HMO where bills are included — they are deductible. Where the tenant pays directly, they’re not your expense to claim.
Mortgage interest, but with a catch
Mortgage interest on a residential BTL is not deducted from the rental profit. Instead, you receive a 20% basic-rate tax credit on it — see our separate guide to Section 24 for the full mechanics. Mortgage arrangement fees are treated as finance costs, the same way.
Legal and professional fees (sometimes)
Costs of drawing up a tenancy agreement, evicting a tenant, accountant’s fees for the property accounts, costs of recovering rent arrears — all deductible. Costs of acquiring the property (conveyancing, search fees, legal fees on purchase), or of selling it, are not deductible against rental income — they sit against capital gains.
Source: PIM2120.
Travel costs
Travel to and from your rental property for genuine business reasons (inspections, meeting a tradesperson, moving a tenant in) is deductible. HMRC’s simplified mileage rate (currently 45p per mile for the first 10,000 miles, 25p above that, in your own car) is the most common way to claim — keep a log.
Source: PIM2220.
Replacement of domestic items
For furnished lets, the cost of replacing furniture, white goods, carpets, kitchenware and similar is deductible in the year of replacement (Replacement of Domestic Items Relief). The initial furnishing of a previously-unfurnished property is not — it’s capital. Replacements with substantial improvements (a £200 microwave replaced with a £900 oven) get restricted to the like-for-like portion.
The category landlords get wrong: capital vs revenue
A repair restores something to the condition it was in. An improvement makes it better than it was. Repairs are deductible against rental income (revenue expenses). Improvements aren’t — they’re capital and only reduce the gain when you sell.
The hard cases:
- Replacing a broken kitchen with an equivalent kitchen — repair.
- Replacing a working but tired kitchen with a higher-spec one — improvement in part. The ordinary-replacement element may be deductible; the upgrade element isn’t.
- Adding an extension or a loft conversion — capital, never deductible against rent.
- Replacing single-glazed windows with double-glazed — repair in modern HMRC practice, because double-glazed is now the modern equivalent. Reflects the principle that “like-for-like with current materials” still counts as repair.
- Repainting after wear and tear — repair.
- Initial decoration of a newly-acquired property to make it lettable — capital, because it brings the property into the rentable condition you bought it for.
Things that aren’t allowable
- Your own time and labour. If you do a job yourself rather than paying a tradesperson, there’s nothing to claim — you can’t deduct your own time.
- Capital expenditure (extensions, structural changes, first-time furnishing of a previously-unfurnished property). Reduces the gain on sale, but doesn’t reduce this year’s rental tax.
- Personal expenditure. The wholly-and-exclusively rule is strict. If a cost has a meaningful private element, it isn’t deductible (or only the strictly-business proportion is, where that’s identifiable).
- Costs of acquiring or selling the property. Stamp Duty, conveyancing, agent fees on sale — all capital.
- Mortgage capital repayments. Only the interest piece is a finance cost (and even then, see Section 24 above). The capital repayment is paying down your asset, not an expense.
The £1,000 property allowance
If your gross rental income for the year is £1,000 or less, you don’t need to declare it at all — the property allowance covers it. If your gross income is above £1,000 but you don’t want to track expenses, you can elect to deduct a flat £1,000 allowance instead of actual expenses (called “partial relief”).
For most landlords with anything more than a single small rental, actual expenses give a bigger deduction than £1,000 — so the allowance is most useful for marginal cases (someone renting out a spare room or a parking space).
Source: ITTOIA 2005 s311.
Quarterly relevance under MTD ITSA
Under MTD ITSA, you submit a summary of income and expenses every quarter. The categorisation work — is this a repair or an improvement? a tenant-found fee or a sale fee? — happens at the quarterly submission rather than once a year. That’s the practical shift. Adjustments and reclassifications can still be made at the Final Declaration, but you’re no longer waiting until 31 January to think about any of it.
Records you need
- A receipt or invoice for every expense — paper or digital.
- For repairs/improvements, evidence of the existing state and the replacement (photos and the original bill help in disputes).
- For mileage, a log of journeys, dates, and reasons.
- For multi-property landlords, allocation of each cost to the specific property — this matters under MTD.
- Bank statements showing the actual payments for everything.
Ezra categorises every transaction for your firm
Ezra reads each client’s bank statement, tags every transaction (rent, repair, agent fee, mortgage, capital…), and shows the reasoning. Every borderline call — capital vs revenue, allowable vs personal — surfaces with the HMRC manual paragraph behind it, so your preparer reviews and overrides with full context.
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