What tax can you claim back on a rental property?

Whether you only rent out a few properties or have started a business around lettings, one goal is in common. Profit. So, it’s not surprising that many landlords are interested in the tax you can claim back on a rental property. We’ll explain everything you need to know about allowable expenses to help you get your finances in order.

What are landlord allowable expenses?

For landlords, an allowable expense relates to anything you have spent wholly and exclusively for the purpose of renting out a property. This refers to costs that are incurred to upkeep the property and can include several types of expenses. 

Types of allowable expenses for landlords

Claiming allowable expenses can help to reduce your tax bill. You should keep all of your receipts for the tax year safe and filed away, as they may be needed for your claim. Some of the main costs include:

  • Rent and service charges
  • Utilities such as water rates, gas and electricity bills
  • Council tax
  • General maintenance and repair costs
  • Cost of services such as cleaners and gardeners (must be included in the rental agreement)
  • Landlord insurance
  • Letting agents’ fees
  • Legal fees
  • Accountant’s fees
  • Costs incurred from advertising for new tenants

Expenses that aren’t allowable

HMRC have strict rules on what counts as an allowable expense, and what expenses are excluded. Bear in mind that you cannot claim back the following costs on a rental property:

  • Capital expenditure: This includes buying a property, renovation work such as a loft conversion/extension and the cost of furnishings.
  • Personal expenses: Anything that doesn’t relate to the rental property can’t be claimed. This includes things like your private phone bill.
  • Clothing: Clothing isn’t an allowable expense under any circumstances. If you bought clothing to wear to a meeting with your tenant/letting agent, this still cannot be claimed.

Replacement of Domestic Items Relief

But there are some more costs that landlords can claim back that don’t fall under ‘allowable expenses’. This is the Replacement of Domestic Items Relief. The relief would typically cover things like:

  • ​​Appliances like fridges and washing machines
  • Moveable furniture like beds and wardrobes
  • Carpets 
  • Curtains 
  • Kitchenware such as crockery and cutlery
  • TVs

There are some conditions you must follow. Firstly, the cost must have been incurred for replacing one of the domestic items listed above. With an emphasis on replacement - the old item cannot be available to use in the property. You can’t claim for purchasing a second washing machine for your tenant if they are still planning to use the old one, for example. 

To claim the full amount of the replacement item, it must be like-for-like to the original. If the new appliance is an upgrade and costs a whole lot more than the original, you would only be able to claim back a portion of the cost. Finally, the new item must be used by the tenants of the property only.

How to claim allowable expenses

When you complete your Self-Assessment tax return, you should state the total amount of allowable expenses for the tax year. You won’t need to provide receipts straight away, but be aware that HMRC can ask you for evidence in the future and you can be fined for presenting false information. 

Because of this, we recommend that you keep receipts for six years after you’ve submitted your tax return. HMRC have the right to investigate your landlord finances during this time, so you should have the right evidence prepared. 

We hope that you’ve found our article useful. You may be interested to know if you have to pay income tax on a rental property - check out our advice centre to learn more! We cover topics such as damaged property, property access and more.