Most landlords lose money to tax not through avoidance schemes they never used, but through deductions they were entitled to and never claimed. The rules on allowable expenses for landlords are not complicated, but they are specific — and two of them catch almost everyone out.
The first is the line between a repair and an improvement, which decides whether you deduct a cost this year or wait until you sell. The second is mortgage interest, which stopped being a deductible expense years ago and is now handled as a tax credit instead — a change that quietly pushed a lot of landlords into a higher tax band.
This guide covers what you can deduct, what you cannot, how the finance cost restriction actually works with a worked example, and what records you need now that Making Tax Digital has started. It applies to individual landlords letting UK residential property; companies are taxed differently.
Key takeaways
- An expense is deductible only if it is incurred wholly and exclusively for the letting business.
- Repairs are deductible now. Improvements are not — they reduce your capital gain when you sell.
- Mortgage interest is not an expense. You get a 20% tax reducer instead, which costs higher-rate taxpayers real money.
- Replacing a sofa or a fridge is deductible under replacement of domestic items relief. Buying the first one is not.
- Mileage is 55p per mile for the first 10,000 miles from 6 April 2026, up from 45p.
- Making Tax Digital applies from April 2026 if your qualifying income is over £50,000.
The test every expense has to pass
HMRC allows a deduction where the cost is incurred wholly and exclusively for the purposes of the property business. That phrase does the heavy lifting. A cost with a private element is not automatically barred, but you can only claim the business proportion, and you need a defensible basis for the split.
The second test is revenue versus capital. Revenue costs keep the property doing what it already did and are deductible against rental income. Capital costs create something better or new, and are not deductible against rent — they go into your base cost for capital gains tax when you sell.
What you can and cannot claim
| Deductible against rent | Not deductible against rent |
|---|---|
| General maintenance and repairs | Capital improvements and extensions |
| Landlord insurance | The capital part of mortgage repayments |
| Letting agent and management fees | Mortgage interest (20% tax reducer instead) |
| Accountant’s fees | Your own time or labour |
| Ground rent and service charges | Personal or private expenditure |
| Utilities and council tax you pay | Clothing and personal items |
| Gardening and cleaning | Initial purchase of furniture or appliances |
| Advertising for tenants | Costs of buying or selling the property |
| Business phone calls and stationery | Legal fees on the purchase |
| Legal fees for leases under a year, or renewals under 50 years | Fines and penalties |
| Travel between properties for business purposes | Commuting from home to a managing office |
| Replacement of domestic items (see below) | Improvements dressed up as replacements |
Repair or improvement? The line that costs the most
HMRC treats this as “a question of fact and degree in each case”. The working principle is that restoring an asset to its previous condition is a repair, while making it better, bigger or different is an improvement.
Two rules make this more generous than landlords often assume.
Modern materials still count as like-for-like. If you replace lead pipes with copper or plastic, or wooden beams with steel girders, that remains a repair — unless the new material is specified to do materially more, such as girders chosen to carry heavier loads.
Technology moving on does not make it an improvement. HMRC’s own example is double glazing: replacing single-glazed windows with double glazing is a deductible repair, not a capital improvement, because the function and character of the asset are broadly the same. The same logic covers replacing an old boiler with a modern equivalent.
Where it tips the other way is scope. Refitting a kitchen with equivalent units is a repair; extending the kitchen, adding units that were not there, or upgrading to a materially higher specification is capital. And if the work is a significant improvement overall, the whole cost becomes capital — including redecoration you only did because of the improvement.
Repair — deduct now
✓ Fixing a leaking roof
✓ Single to double glazing
✓ Like-for-like boiler swap
✓ Repainting between tenancies
Improvement — capital
✗ Adding an extension
✗ Converting a loft
✗ Upgrading to a far higher spec
✗ Adding a bathroom that wasn’t there
Domestic items — on replacement
✓ Replacing a worn-out sofa
✓ Replacing a broken fridge
✓ Replacing carpets and curtains
✗ Buying the first one
If you are unsure which side a job falls on, it is worth reading our guide to the repairs landlords are legally required to make — work you are obliged to do is almost always a repair.
Mortgage interest: the 20% tax reducer
Since April 2020, individual landlords cannot deduct any finance costs from rental income. That includes mortgage interest, interest on loans to buy furnishings, overdraft interest and most arrangement fees.
Instead you get a basic rate tax reduction: 20% of the lowest of three figures —
- your finance costs for the year, plus any brought forward;
- your property business profits after brought-forward losses;
- your adjusted total income above the personal allowance, excluding savings and dividends.
A worked example
Say you receive £24,000 in rent, spend £6,000 on allowable expenses, and pay £9,000 in mortgage interest. You also have employment income that makes you a higher-rate taxpayer.
| Rent received | £24,000 |
| Less allowable expenses | (£6,000) |
| Taxable property profit | £18,000 |
| Tax at 40% | £7,200 |
| Less tax reducer (20% × £9,000 interest) | (£1,800) |
| Tax payable | £5,400 |
Under the pre-2017 rules the interest would have been deducted first, giving a profit of £9,000 and a tax bill of £3,600. The restriction costs this landlord £1,800 a year.
There is a second, less obvious effect. Because the gross profit of £18,000 goes into your total income rather than the net £9,000, the restriction can push you over thresholds — into the higher-rate band, past the £60,000 point where the high income child benefit charge starts, or into the personal allowance taper. That is why some landlords look at incorporating, though the transaction costs usually make it a close call. Take advice before restructuring.
Replacement of domestic items relief
You cannot deduct the cost of furnishing a property for the first time. You can deduct the cost of replacing domestic items in a residential let — beds, sofas, carpets, curtains, white goods, crockery and cutlery.
Three conditions apply. The old item must be taken out of use in the property. The new item must be substantially the same — if you upgrade, your deduction is capped at what an equivalent replacement would have cost. And any proceeds from selling the old item reduce the claim.
So replacing a worn £400 sofa with a £400 sofa gives a £400 deduction. Replacing it with a £1,200 designer sofa still gives roughly £400. The relief is not available on rent-a-room lettings.
Travel and mileage
You can deduct the cost of travel undertaken solely for the property business — inspections, viewings, meeting contractors, trips between properties. Travel from home to a property is only allowable where the purpose of the journey is exclusively business.
Rather than tracking actual running costs, most landlords use HMRC’s fixed mileage rates. These increased from 6 April 2026:
| Vehicle | From 6 April 2026 | Previously |
|---|---|---|
| Cars and goods vehicles, first 10,000 miles | 55p per mile | 45p per mile |
| Cars and goods vehicles, over 10,000 miles | 25p per mile | 25p per mile |
| Motorcycles | 24p per mile | 24p per mile |
If you use the mileage rate you cannot also claim capital allowances or actual running costs for the same vehicle. Keep a log of dates, destinations, mileage and purpose — it is the first thing asked for in an enquiry.
The £1,000 property allowance
If your gross property income is £1,000 or less in a tax year, it is tax-free and you generally do not need to declare it. If it is more, you can choose to deduct the £1,000 allowance instead of your actual expenses.
It is one or the other, never both. The allowance only makes sense where your real expenses come to less than £1,000 — which for a typical let, once insurance, agent fees and a single repair are counted, is rare. Do the sum both ways before deciding.
Cash basis or accruals?
The cash basis — counting money when it actually moves — has been the default for individual and partnership property businesses since 2017/18, where receipts for the year are £150,000 or less. Above that, you must use the accruals basis and match income and costs to the period they relate to.
You can elect out of the cash basis if the accruals basis suits you better, for example where a large invoice straddles the year end. Companies, LLPs and trustees cannot use the cash basis at all, and spouses or civil partners letting jointly generally have to use the same basis as each other.
Records, and what Making Tax Digital changes
Making Tax Digital for Income Tax is being phased in by qualifying income — your gross self-employment and property income combined, before expenses.
When Making Tax Digital applies to you
Based on your 2024/25 tax return. Quarterly updates plus a final declaration.
Based on your 2025/26 return.
Based on your 2026/27 return.
If you are in scope, you must keep digital records and send quarterly updates through compatible software. Spreadsheets alone are not enough unless bridged. Our guides on landlord responsibilities for Making Tax Digital and the 7 November quarterly deadline cover the mechanics.
Whatever your threshold, keep invoices and receipts, bank statements for a dedicated rental account, your mileage log, and a note of the reasoning on anything borderline between repair and improvement. HMRC can enquire years later, and a contemporaneous note is worth far more than a reconstruction.
Five expensive mistakes
- Deducting the whole mortgage payment. Only the interest attracts the tax reducer, and the capital repayment is not relievable at all.
- Treating a refurbishment as a repair. If the work substantially improves the property, the whole cost is capital — including the redecoration afterwards.
- Claiming the first set of furniture. Only replacements qualify.
- Forgetting capital costs entirely. They are not lost — record them, because they reduce your capital gain when you sell.
- Taking the £1,000 allowance by default. On most lets, actual expenses are worth far more.
What to do next
Pull last year’s figures and check three things: that you claimed every category in the table above, that anything you treated as a repair genuinely was one, and that your mortgage interest was handled as a tax reducer rather than an expense. Then set up a mileage log and a separate bank account for the letting business if you have not already.
If you want to see what the numbers do to your return, our ROI calculator works through yield and return after costs, and our guide to hidden buy-to-let costs covers the outgoings landlords routinely underestimate. If you use an agent, remember their fees are fully deductible — worth factoring into the decision on whether to use one.
Written by the Landlords Portal team, drawing on hands-on experience of letting and managing property in the UK. This article is general information, not tax advice — figures and thresholds change, and your own position may differ. Check with an accountant before filing.
Frequently asked questions
Can I deduct my mortgage payments from rental income?
No. The capital element was never deductible, and since April 2020 the interest is not deductible either. Instead you get a basic rate tax reduction worth 20% of the lowest of your finance costs, your property profits, or your adjusted total income above the personal allowance.
Is a new kitchen a repair or an improvement?
Replacing a worn kitchen with an equivalent one is a repair and deductible. Extending it, adding units that were not there before, or fitting a materially higher specification makes it capital expenditure, deductible against your gain when you sell rather than against rent.
Can I claim double glazing as a repair?
Yes. HMRC accepts that replacing single glazing with double glazing is a revenue repair rather than an improvement, because it reflects a change in what is normally available rather than a change in the character of the asset.
What mileage rate can landlords claim?
From 6 April 2026 the rate is 55p per mile for the first 10,000 business miles in a car or goods vehicle and 25p per mile after that. Motorcycles are 24p. The previous first-10,000 rate was 45p.
Should I claim the £1,000 property allowance?
Only if your actual allowable expenses for the year come to less than £1,000, because you cannot claim both. For most lets, insurance, agent fees and one repair already exceed it.
When does Making Tax Digital apply to me?
From April 2026 if your qualifying income from self-employment and property exceeds £50,000, from April 2027 above £30,000, and from April 2028 above £20,000. Qualifying income is gross, before expenses.
Can I claim expenses before the property is let?
Revenue costs incurred in the seven years before letting starts can generally be treated as incurred on the first day of the business, provided they would have been deductible had the business already begun. Costs of buying the property, and any improvement work, remain capital.
Sources: GOV.UK — Work out your rental income when you let property; HMRC Property Income Manual PIM2030; GOV.UK — Tax relief for residential landlords; GOV.UK — Making Tax Digital for Income Tax.
