Summary of allowable expenses which landlords may deduct from rental income for tax purposes

Allowances applicable from April 2017

NOTE: different rules apply if you rent out property for holiday lettings. This is classed as trading income, not property income.

If property is owned jointly by two persons - as is the case with property owned by a married couple - then each owner or spouse is usually assessed for one half of the property income.

The following expenditure and allowances may be deducted from rent in calculating taxable property income:

• REPAIRS TO PROPERTIES:  Repairs to properties, including decorating, are allowable expenses. However work that leads to an enhancement in the value of the property, such as extensions, are NOT allowable. This is regarded as capital expenditure or investment and may not be deducted against profits. There are no capital allowances available for the cost of the property itself nor for the land on which it stands.
• AGENTS FEES:  Sums paid to a letting agent are allowable expenses.
• INSURANCE PREMIUMS 
• OTHER MANAGEMENT EXPENSES 
• CLEANING OF PROPERTIES 
• INTEREST ON MORTGAGES OR LOANS TO PURCHASE PROPERTIES:  In the 2017/18 tax year only 75% of the interest paid by unincorporated landlords (i.e landlords trading as sole traders rather than limited companies) is directly deductible from profits. The remainder of the interest attracts a tax credit at the basic rate of income tax. The amount of interest which qualifies for the tax credit is the lower of:
  • 25% of the mortgage or loan interest
  • Profits of the property business
  • Total income less the Personal Allowance and excluding any income from savings or dividends
  Companies must offset interest paid on mortgages or property loans against interest income, not property income.
• REPLACEMENT OF FURNISHINGS - Furnished Properties only: . Where properties are let furnished allowances are available for capital expenditure on furniture, furnishings, appliances (including white goods) and kitchenware, where the expenditure is on a replacement item provided for use in the dwelling. The amount deductible from profits is the cost of the replacement item (or an equivalent replacement item if the actual replacement is an improvement over the old item). To this amount may be added any costs incurred disposing of the old item. However any proceeds from the sale of the old items must be deducted. (Note: This allowance replaced the old Wear and Tear Allowance in April 2016.)
• MAINTENANCE EQUIPMENT: Capital allowances are not available for the purchase or improvement of properties to rent. However capital allowances may be claimed for equipment used for the cleaning or maintenance of the properties.
• RENT-A-ROOM SCHEME: Individual persons (but not companies) who rent out a room in their own homes may claim a tax-free allowance instead of the above expenses. Until the 2016/17 tax year this allowance was set at £4,250. In April 2016 it was increased to £7,500.