You have a shoebox of receipts and one honest question: which of these actually come off my rental profit before HMRC taxes it? It matters, because every pound you can legitimately claim is a pound you are not taxed on. But the UK rules are specific, and a lot of advice online is quietly American. This is a UK-only checklist.
The one rule that decides everything
An expense is allowable only if it is incurred "wholly and exclusively" for your property rental business. That single phrase does most of the work. A cost that is partly personal (your own phone, a car you also use privately) can only be claimed for the business share. A cost that buys you something lasting and new is usually capital, not a running cost, and different rules apply.
Hold two questions in your head for every receipt:
- Was this wholly and exclusively for the letting?
- Is it a running cost (revenue) or a lasting improvement (capital)?
Get those two right and you are most of the way there.
Revenue vs capital: the line everyone trips over
Revenue expenses are the day-to-day costs of running the let. You deduct them from rental income in the year you incur them. Capital expenses buy or improve the asset itself. You cannot deduct them from rental income at all; instead they may reduce your Capital Gains Tax bill when you eventually sell.
| Revenue (deduct now, vs rental income) | Capital (save for CGT at sale) |
|---|---|
| Repainting a tired room | Building an extension |
| Replacing broken roof tiles like-for-like | Adding a loft conversion |
| Fixing an existing boiler | Installing the first-ever central heating |
| Swapping a worn kitchen for a similar one | Upgrading a basic kitchen to a high-spec one |
| Damp treatment | New conservatory |
The test HMRC applies is repair versus improvement. Restoring something to its original condition is a repair (revenue). Making it better than before, or creating something new, is an improvement (capital). "Like-for-like" is your friend: a modern equivalent of an old part still counts as a repair even if the new part is inevitably a little better, because you cannot buy 1990s materials any more.
Why 'depreciation' is a US trap
Here is the myth that costs UK landlords the most confidence. In the United States, a residential landlord depreciates the building over 27.5 years and deducts a slice of that "wear" against rental income every single year, even in years they spend nothing. American blogs, forums and videos repeat it constantly.
You cannot do this in the UK. There is no depreciation deduction for residential rental property against income tax. Full stop.
What the UK gives instead is narrower and only kicks in when you actually spend money. Since April 2016 the old 10% "wear and tear allowance" was abolished and replaced by Replacement of Domestic Items relief. If you replace a domestic item you provide for the tenant (sofa, bed, fridge, carpet, curtains, crockery), you can claim the cost of the replacement, less any improvement element and less anything you get for the old one. Note the word replacement: the first time you buy that sofa, it is not deductible. Only the swap is. See the gov.uk rental income guidance for the current detail.
So the mental model flips. There is no annual paper deduction for the building ageing. There is a real deduction when a real thing wears out and you replace it.
The UK allowable-expenses checklist
Costs that are usually allowable as revenue expenses, provided they are wholly and exclusively for the let:
- Letting agent and property management fees
- Landlord insurance (buildings, contents, rent guarantee)
- Repairs and maintenance (not improvements)
- Ground rent and service charges on a leasehold flat
- Council tax and utilities for periods you pay them, for example during a void
- Gas safety checks, EICR, boiler servicing
- Accountancy and some legal or professional fees
- Phone, stationery and advertising for tenants
- Business mileage or travel to the property for management
- Direct costs of services you provide, such as communal cleaning or gardening
Costs that are NOT allowable against rental income: the property purchase price, capital improvements, your own labour, Stamp Duty on purchase, and depreciation of the property.
Mortgage interest is not a normal expense any more
If you own the property personally, mortgage interest deserves its own paragraph because it no longer behaves like other costs. Section 24 fully phased in from the 2020-21 tax year and now restricts relief on finance costs to a 20% basic-rate tax credit rather than a straight deduction. Higher and additional-rate landlords feel this most. Limited companies are different: a company still deducts mortgage interest in full as a business expense. HMRC sets out the mechanics and worked examples here.
A worked example
Say you let a flat for £12,000 a year and you are a higher-rate (40%) taxpayer. Your revenue expenses for the year:
- Letting agent fees: £1,200
- Insurance: £300
- Repairs (repainting, a new tap): £800
- Gas safety and boiler service: £150
- Accountancy: £200
Total allowable revenue expenses: £2,650. Your taxable rental profit is £12,000 less £2,650, which is £9,350. Tax before the finance credit, at 40%, is £3,740.
You also paid £4,000 in mortgage interest. Under Section 24 that is not deducted from profit; instead you get a 20% credit of £800. Final Income Tax on the let is roughly £3,740 less £800, which is £2,940.
Now the trap. Imported thinking says: also deduct the £4,000 interest in full and, say, £3,000 of "depreciation". That would fantasise profit down to about £2,350 and a tax bill near £940. The gap between £940 and £2,940 is the cost of using the wrong country's rulebook. It usually surfaces as an unexpected bill, or worse, an enquiry.
If you want to see how repairs, agent fees and finance costs move your actual monthly position, the /tools/btl-cashflow-calculator lets you plug the figures in and read the after-cost cashflow rather than guessing.
Keep the paperwork
HMRC can ask you to evidence any claim, so keep receipts, invoices and a simple record for the period they can review. A tidy spreadsheet updated monthly beats a January shoebox every time. And when a cost sits right on the repair-versus-improvement line, write down your reasoning at the time; it is far easier to defend a like-for-like replacement while the old, broken thing is still in the skip.
This is general information, not tax or financial advice. Rules and rates change, so check the current gov.uk guidance or ask a qualified accountant about your own situation.
