What Tax Allowable Expenses Can I Claim Against UK Residential Property Rental Income?
Posted on 26th February 2024 at 13:35
What is Rental income?
This is the rent you charge to your tenants for use of property you own. This could cover furnished or unfurnished properties.
You must pay tax on the net profit on the property rental income after any expense and allowance have been claimed for. HMRC treats total profit and losses from all your properties in UK as a single rental business. There are however exceptions to this for which special rules are applied, for example overseas properties which are treated separately for tax purposes. Special rules are also applied to furnished holiday lettings. This article does not aim to cover these special rules and is reference to UK property rental only.

What Expenses Are Tax Allowable Against Rental Income?
Firstly and most importantly all tax allowable expenses must be wholly and exclusively for the purposes of renting out the property. If the property expense is only part of a total expense item, the apportionment of split must be reasonable and be easy to demonstrate in the event of an HMRC investigation.
The following are the main categories of tax allowable expenses but is not intended to be exhaustive list.
General maintenance & repairs to property
Replacement cost for fixtures & fixings on like-for-like basis but not improvement costs ie replacement of bathroom or kitchens at same specification is tax allowable but not an upgraded specification.
Utility bills & council tax
Property liability & Public liability Insurance
Cleaning & gardening service cost
Letting agent fees and management fees
Legal fees
Accountancy fees
Ground rent & Property Service charges
Advertising, Marketing & Stationery
Vehicle costs for business element only or simplified flat mileage rate
Interest element of mortgage payments (tax relief on residential property finance costs is restricted to basic rate Tax @ 20%. This is discussed in more detail next)
Small inventory item replacement costs ie crockery, soft furnishings ie curtains for furnished rental property
Large furnishing replacement cost, but not the initial cost ie movable furniture for a furnished residential property (excludes renting a room in your own home, furnished holiday let or the initial cost of furnishing the rental property. These are not tax allowable and are covered by special rules).

So, What Are The Changes To Income Tax Relief On Property Finance cost?
Since 6 April 2020 tax relief for residential property finance charges ie mortgages, loans or overdrafts, is restricted to the basic rate of income tax of 20% for individual landlords. Pre 2020 individual landlords enjoyed the benefit of offsetting the total interest element of the finance arrangement against profits. Now only 20% of the interest element can be offset against taxable profits. Whilst this will not impact the accounting business profit, the taxable profit will significantly increase pushing many landlords into the higher rate tax band of 40%.
Only individuals who are landlords are impacted by this change either as UK residents letting residential properties in the UK and overseas or as Non-UK residents letting residential properties in the UK.
If loans have been taken out for both residential and commercial properties, the interest element should be reasonably apportioned for the residential properties only.
Does This Change Impact Property Companies?
No, limited property companies and landlord of furnished holiday lets* are not impacted. Relief for interest and other finance costs can continue to be claimed for in the normal way and is not restricted to the basic tax rate of 20%. (*Budget Spring 2024 - Furnished Holiday Lets (FHL) regime which allowed the full finance/mortgage interest cost to be tax deductible from profits for property let as a holiday home will be abolished from April 2025)
What About The Tax-Free Property Allowance Apply - When Should This Be Used?
If the annual gross property income is £1,000 or less it may be easier for individual landlords to just claim for the full relief tax-free property allowance of £1,000 per annum instead. The amount claimed however cannot exceed the property income amount itself, referred to as partial relief. In this case a landlord does not need to tell HMRC or declare this income on a tax return but full records of the property income must be kept to support any HMRC investigation.
So What Expense Types Are Not Tax Allowable Against Rental Income?
Expenses not exclusively and wholly for the purpose of rental the property
Initial cost of furnishing a property for rental
Holiday let rental property furnishings
Repair & building cost to restore a property to a fit state for habitation before renting. This is deemed as capital expenditure as it is judged as improving the property
Capital expenses defined as enhancement to a property ie upgrade or improvement to initial property ie replacing fittings or structural work with a higher specification ie upgraded bathroom or adding a new security system (records must be kept as cost proof of enhancement which will support any Capital Gains Tax relief claim if the property is sold in the future)
What About If I Jointly Own Property, How Does This Impact Tax Liability?
A part share of the property will determine the amount of rental income you report to HMRC and therefore the amount of tax you pay. This share should be added to any other rental income in your property business. Property is assumed jointly owned by married couples and civil partners and will be taxed in equal shares unless a HRMC form is submitted to declare beneficial interests in joint property and income.
Should I Tell HMRC If I Have Rental Property?
Yes, you must contact HMRC if you have taxable profits from the property you rent. You need to do so by 5 October after the taxable rental profits year. HMRC can be informed of rental property using let property campaign on www.gov.uk website. If however your total rental income, before deducting any allowable expenses, is £1,000 or less you will not need to declare either the property or property rental income to HMRC.
Talk to us about your Business
If you would like support and a better understanding of how to ensure your rental property is tax efficient and ensure your business is claiming everything it is entitled to just call us. As your adviser, we would be delighted to save you time, save your money and help you achieve your business goals. Just complete our contact form here.
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