Expenses and allowances landlords can claim

Allowable expenses a landlord can claim

As a general rule, landlords can claim the expenses of running and maintaining their property, which reduces their tax bill.

If the rent you charge covers services like water, or council tax, you'll need to count the rent you charge the tenant within your income - but you can claim the costs you pay as an expense.

Some examples of allowable expenses you can claim are:

• water rates, council tax, gas and electricity
• landlord insurance
• costs of services, including the wages of gardeners and cleaners (as part of the rental agreement)
• letting agents' fees
• legal fees for lets of a year or less, or for renewing a lease of less than 50 years
• accountant's fees
• rents, ground rents and service charges
• direct costs such as phone calls, stationery and advertising for new tenants

The expense should be incurred wholly and exclusively as a result of renting out your property.

Where only part of the expense meets this condition, you can deduct that part from your income - for example, the cost of lighting and heating a property which is partly used for private purposes as well as renting.

If you let only part of your home, or let it out for only part of the year, you have to apportion your expenses.

You can also claim some of the interest on buy-to-let mortgages. We've explained this in a special guide: buy-to-let mortgage tax relief changes explained.

• Get a head start on your 2023-24 tax return with the Which? Tax Calculator. Tot up your bill, get jargon-free, money-saving tips and submit your return direct to HMRC.

How does an allowable expense affect your tax bill?

Expenses are business costs that you can deduct from your income when calculating your overall profit on a self-assessment tax return.

As the tax you're charged is based on your profit, rather than your overall income, reducing the profit you've made over the tax year, it means the tax you'll owe will also be reduced.

Most landlords will file their tax return under the cash basis (this is automatic for those who earn less than £150,000 - but it is possible to opt out). This means your tax return should only include income that's been received during the tax year, and expenses that have been paid during that time.

If you file using the accrual basis, this would include anticipated revenue and expenses.

Annual investment allowance for landlords

As a landlord, you cannot deduct expenses of a capital nature from the rental income you earn.

That means, you can't deduct the cost of building an extension, or renovating a home that's in a rundown state.

You may, however, be able to use the cost of these investments to reduce your capital gains tax bill when you come to sell your rental property.

• Find out more: capital gains tax on property and how to work out your bill.

Changes to landlords' 'wear and tear allowance'

If the property or properties you let out are fully furnished, you used to be able to claim for wear and tear of furnishings, such as cookers, carpets, beds and televisions.

The wear and tear allowance allowed you to claim a maximum of 10% of the net annual rent (income less expenses) each year.

However, this has now changed. The government now allows you to claim tax relief on anything you spend on replacing what it labels as a 'domestic item'.

Crucially, this only applies to items you are replacing. You can't claim tax relief on the actual cost of kitting out a property for the first time with furniture or appliances. It can only apply when an item is genuinely replaced and no longer used in the property.

What qualifies for the 'replacement of domestic items relief'?

The government lists a number of examples of what domestic items qualify for this new relief. These include:

• Replacement beds
• Replacement carpets
• Replacement crockery or cutlery
• Replacement curtains
• Replacement fridges, washing machines etc
• Replacement sofas

It's worth remembering that you can only claim for a like-for-like replacement.

If, for example, you bought a new fridge worth £600, but the cost of replacing your old fridge with a very similar one was only £400, you'd only be able to claim £400 relief.

You can also claim for the cost of disposing items (usually electrical goods).

How does the 'replacement of domestic items relief' work?

You can deduct the cost of replacing domestic items from your rental income tax when calculating your net profit for the year, on which you pay tax.

So say you replace a number of items in your property, ready for some new tenants. These include curtains for £200, a washing machine for £250 (which also costs £50 to dispose of) and a new bed for £400.

The total relief you can claim for is £200 + £250 + £50 + £400, which amounts to £900.

This can be deducted from your annual rental income to work out your tax bill at the end of the tax year.