The Facebook Live for August 2026 covered the specific expenses that can be claimed against rental income, including repairs vs improvements, mortgage interest relief, letting agent fees, and the “replacement of domestic items relief”. It provides clarity and helps landlords maximise their claims correctly.
For the landlords!
With MTD ITSA now live for many landlords, getting your expenses right quarterly is more important than ever. That is anyone with self-employment and/or property income over £50,000, who now has to keep digital records and send quarterly updates to HMRC.
This blog post will cover the main categories of allowable expenses. Allowable expenses are costs that can be deducted from your rental income to reduce your taxable profit.
The Golden Rule: “Wholly and Exclusively”
An expense is only allowable if it was incurred “wholly and exclusively” for the purpose of the property rental business. If there is a personal element, you can only claim the business proportion. To make it easier, where possible, ensure that you are not paying for items that have mixed use – all purchases should be for that particular rental property. You must ensure you have all the paperwork to back up the transactions. That way, you can provide proof to HMRC that you have recorded a transaction properly within the accounts, if they were to ask.
Repairs vs. Improvements (Revenue vs. Capital)
This is the most common area of confusion for landlords. Having a clear understanding of what types of expenses can be claimed against the revenue of a rental property will help when it comes to completing your accounts.
Repairs are allowable expenses. This includes things like replacing a broken boiler with a similar model, fixing a leaking roof, and repainting between tenants. These are all purchases that maintain the property.
Improvements to the property are not allowable expenses. Improvements are any type of work done that adds value to the property. For example, building an extension, adding a conservatory, significantly upgrading the kitchen beyond a like-for-like replacement. These types of costs are not allowed to be claimed against your revenue. Instead, they are added to the cost of the property, which reduces the gain you are taxed on when you sell it. Anytime you make an improvement to the rental property, the transactions still get recorded in the accounts, but they would go on the balance sheet. When the property is sold, you would then be able to potentially use them to reduce your Capital Gains Tax.
Common Allowable Expenses Checklist
To make this easier to work through, I have put together a one-page checklist you can print off and keep with your property records, plus an interactive version online.
Rather than read the whole thing out, here is what it covers:
- Letting agent and property management fees
- Landlord insurance – buildings, contents and rent guarantee
- Ground rent and service charges
- Utilities and council tax, where you are paying them rather than the tenant
- Safety certificates – gas, electrical and EPCs
- Repairs and maintenance, including cleaning and gardening between tenancies
- Accountancy and bookkeeping fees, and legal fees on shorter leases
- Advertising for new tenants
- Travel to the property for inspections, repairs and viewings
- Replacement of domestic items, which we will come on to shortly
- Direct running costs like phone calls, stationery and postage
And on the reverse, the ones that catch people out because they are not allowable – the cost of the property itself, improvements, anything personal, and the capital element of your mortgage payments.
In my experience, the ones landlords most often forget are agent fees, service charges, safety certificates and the mileage for inspection visits. None of them are big on their own, but across a year they add up to real money.
Everything on the list still has to pass the wholly and exclusively test we covered at the start, and it is all based on HMRC’s current guidance for residential landlords. I used AI to help draft and lay the checklist out, and I have checked every item against HMRC’s guidance myself before publishing it.
Two Special Cases
Two special types of transactions need to be pointed out.
- Mortgage Interest Relief: If you are an individual UK Landlord, you can no longer deduct mortgage interest as an expense. Instead, you get a tax credit at the basic rate of tax (20%) on the interest portion of your mortgage payments, which you can claim through your self-assessment tax return.
However, there are some exceptions to this rule.
a. If you operate as a limited company, and it owns the rental property, then you can deduct 100% of the mortgage interest as a business expense.
b. You may still come across older guidance saying that furnished holiday lets (FHLs) are exempt from this restriction. Under the old FHL regime that was correct – owners of qualifying holiday lets could deduct 100% of their finance costs, in the same way a trading business can. Holiday lets are now treated in the same way as any other residential letting, so the 20% tax credit applies to them too. If you have an FHL and you are working from guidance written before April 2025, please do check it.
c. If the rental property is non-residential or commercial, then they are exempt from the personal mortgage interest restrictions. - Replacement of Domestic Items Relief: If you have to replace items in the rental property that are classed as movable furniture, appliances or furnishings, you can claim for the cost of a like-for-like replacement. This would include items such as the fridge, washing machine, sofa, carpets, curtains and beds.
4 conditions must be met to claim this type of relief:
a. The relief can only be claimed if the person or company claiming it operates a property business that includes the letting of houses.
b. The old item is replaced with a new item, and it must be for the exclusive use of the lessee in that property. The old item must no longer be available for use.
c. The cost of the new item must not be prohibited by the “wholly and exclusively” rule, but it would otherwise be blocked as capital expenditure. That is really the whole point of this relief – it lets you deduct something that would normally be treated as capital and disallowed.
d. The owner of the rental property must not claim any Capital Allowances for the purchase of the new item.
You cannot claim this relief if rent-a-room relief has been claimed in relation to any rent-a-room receipts received. Under the old furnished holiday lettings regime, FHLs were also excluded from this relief because they could claim capital allowances on furniture and fittings instead. Now that the FHL regime has ended, holiday lets have lost those capital allowances and can claim replacement of domestic items relief in the same way as any other let.
You can read more about the rules set out by HMRC on their website.
When you claim this relief, you can claim the exact cost of the new like-for-like item, as well as the delivery and disposal costs. You then deduct anything you received for the old item, so if you sold the old fridge for £30, that £30 comes off your claim. These would get claimed directly through your self-assessment tax return. Keep in mind that if you buy an item that is of higher quality, the deduction is limited to being only for the cost of an equivalent replacement.
You must keep very clear records for transactions of this kind. That would include any invoices and receipts for the disposal of the old item and the purchase of the new item.
There are a couple of other pages on the government website that are helpful for landlords:
The Property Income Manual
How to work out your rental income when you let property
Don’t pay more tax than you need to. Keeping meticulous records of your allowable expenses is essential for any landlord. If you’re struggling to keep up with your property bookkeeping, especially with MTD, I can help. Just contact me if you would like to have a chat.