You pay tax on your rental profit, not your rental income. The gap between those two numbers is your allowable expenses, and getting them right is the single biggest lever you have over your buy-to-let tax bill.
Claim too little and you hand HMRC more than you owe. Claim something that isn't allowable, and you risk an enquiry and a penalty. The rules aren't complicated once you see the logic, but a few of them trip up almost every landlord, mortgage interest and the repairs-versus-improvements line in particular.
This guide explains what counts as an allowable expense for 2025/26, what doesn't, and how the trickier reliefs work, with a worked example you can map onto your own figures.
What are allowable expenses for landlords?
An allowable expense is a cost you incur wholly and exclusively for the purpose of renting out your property. If it passes that test and it's a day-to-day running cost rather than a capital cost, you can deduct it from your rental income before working out the tax.
That "wholly and exclusively" phrase matters. A cost that's partly personal needs to be apportioned. If you use your own car for the rental business, for example, you claim only the proportion that relates to property visits, not the school run.
Your taxable rental profit is simply your rental income minus your allowable expenses. That profit then sits on top of your other income and is taxed at your usual rates: 20% in the basic-rate band, 40% in the higher-rate band, and 45% above that for 2025/26 (gov.uk).
Which expenses can you deduct from rental income?
HMRC allows the ongoing costs of running the property. The common ones are:
- General maintenance and repairs (not improvements, see below)
- Water rates, council tax, gas and electricity that you pay
- Landlord insurance (buildings, contents, public liability, rent guarantee)
- Letting agent and property management fees
- Cleaning and gardening between or during tenancies
- Accountant's fees for preparing the rental accounts
- Ground rents and service charges
- Legal fees for a let of a year or less, or for renewing a lease of under 50 years
- Advertising for new tenants
- Direct costs such as phone calls, stationery and travel for running the rental business
You can also claim a proportion of vehicle running costs where they relate to managing the property. Keep evidence for every figure: HMRC expects you to be able to back up what you've claimed (gov.uk).
What can't you deduct?
Some costs simply aren't allowable against rental income:
- Capital improvements such as an extension, a loft conversion or a brand-new fitted kitchen that's better than what was there.
- The capital part of your mortgage repayment. Only the interest gets relief, and even that is now given differently (see below).
- Personal expenses that aren't wholly and exclusively for the business, including private phone calls and your own clothing.
- Your own time. You can't pay yourself a notional wage for managing your own property.
Capital costs aren't lost forever. Many can be set against your gain when you eventually sell, reducing your Capital Gains Tax. For 2025/26, gains on residential property are taxed at 18% in the basic-rate band and 24% in the higher band, after the £3,000 annual exempt amount (gov.uk). So keeping improvement receipts still pays off, just at a different stage.
What is the difference between a repair and an improvement?
This is where most landlords slip up. The test is whether you've restored the property or upgraded it.
A repair returns something to its previous condition. Fixing a leaking roof, replacing a few broken tiles, mending faulty wiring or repainting after wear and tear are all repairs, and all allowable in the year you pay for them.
An improvement makes the property better than it was. Replacing a worn-out kitchen with a like-for-like kitchen is a repair. Ripping out a basic kitchen and fitting a high-spec one with an island and new appliances is an improvement, which is capital, not allowable against rental income.
One helpful point from HMRC: using modern materials because the old ones are no longer made doesn't automatically make a job an improvement. Replacing single-glazed windows with the standard double glazing now sold is generally still a repair, because you're using the nearest current equivalent rather than genuinely upgrading the property.
If a job mixes the two, you split it. The repair element is allowable; the improvement element is capital.
How does mortgage interest relief work now?
This is the change that catches landlords who haven't looked at it since the old rules. For individual landlords paying Income Tax, mortgage interest and other finance costs are no longer deducted as an expense at all.
Instead, you get a basic-rate tax reducer worth 20% of your finance costs (gov.uk). The reducer is 20% of the lowest of three figures:
- Your finance costs for the year (mortgage interest and similar)
- Your property business profits
- Your adjusted total income above the personal allowance (£12,570 for 2025/26, gov.uk)
The reducer can't create a refund, and any finance costs you can't use this year carry forward to the next.
For a basic-rate taxpayer the effect is broadly neutral, because relief at 20% on the interest is similar to what a deduction would have given. For higher and additional-rate landlords it bites: you only ever get 20% relief, even though your profit is taxed at 40% or 45%. It also pushes your gross rental income, not your profit, into the income calculation, which can tip some landlords into the higher-rate band or trigger the personal allowance taper above £100,000.
Note this restriction applies to individuals. A company that holds property pays Corporation Tax and can still deduct interest as a normal expense.
What is the replacement of domestic items relief?
If you let a property with furnishings, you can claim the cost of replacing domestic items: sofas, beds, carpets, curtains, white goods, crockery and similar.
The relief covers a like-for-like replacement, plus the incidental costs of delivery, installation and disposing of the old item, less anything you get for the old one. You can't claim for buying the item the first time, only for replacing it.
If the new item is an upgrade, you claim only what a reasonable modern equivalent of the old item would have cost. Swap a basic single bed for a luxury double, and you claim the cost of a basic single, not the double.
A like-for-like swap to a more energy-efficient model is fine. HMRC treats normal technological progress as expected, so a newer fridge or boiler of similar standard is still a replacement, not an improvement (gov.uk).
Should you use the £1,000 property allowance instead?
If your gross rental income is small, there's a simpler route. The property income allowance lets you earn up to £1,000 of property income tax-free in a year (gov.uk).
- If your gross property income is £1,000 or less, you usually don't need to declare it at all, though you should keep records.
- If it's more than £1,000, you can choose to deduct the £1,000 allowance instead of your actual expenses.
The catch is that it's one or the other. Claim the allowance and you can't also deduct your real costs. So the allowance only makes sense when your actual expenses are below £1,000, which is rare once a mortgage, insurance and agent fees are in play. Most landlords are better off claiming actual expenses.
Worked example: a basic-rate landlord's tax bill
Illustrative example. Priya is a basic-rate taxpayer who lets one flat in England for the 2025/26 tax year. Her figures are made up to show the method.
| Item | Amount |
|---|---|
| Rental income | £18,000 |
| Letting agent fees | £1,620 |
| Landlord insurance | £350 |
| Repairs and maintenance | £900 |
| Ground rent and service charges | £600 |
| Gas safety check and cleaning | £330 |
| Total allowable expenses | £3,800 |
| Rental profit (£18,000 - £3,800) | £14,200 |
Priya also pays £6,000 of mortgage interest. Under the current rules that's not deducted above. Instead it gives a basic-rate tax reducer.
Her tax works out like this:
- Tax on profit: £14,200 × 20% = £2,840
- Finance cost reducer: 20% of the lowest of £6,000 (interest), £14,200 (profit) and her adjusted income. The lowest is £6,000, so 20% × £6,000 = £1,200
- Income Tax on the rental profit: £2,840 - £1,200 = £1,640
If Priya were a higher-rate taxpayer, the profit would be taxed at 40% (£5,680), but the reducer would still be capped at £1,200, leaving £4,480. That gap is exactly why the finance cost rules hurt higher-rate landlords most.
Want to sense-check where your rental profit lands across the bands? Our income tax calculator gives you a quick estimate once you know your profit figure.
How we help landlords get this right
Allowable expenses sound simple until a kitchen refit, a remortgage and a furniture replacement all land in the same year. That's where the repair-versus-improvement line and the finance cost reducer start to matter in pounds.
At Zmartly we look after landlords and property investors, from a single buy-to-let to a portfolio. We keep your property records clean through our bookkeeping services and prepare and file your Self Assessment return so every allowable expense is claimed and nothing risky slips in.
Want to make sure you're claiming everything you're entitled to? Book a free 20-minute call with a Zmartly accountant.
FAQs
Can I deduct mortgage interest from my rental income?
Not as an expense if you're an individual landlord. Since April 2020 you instead get a basic-rate tax reduction worth 20% of your finance costs. Companies that hold property still deduct interest as a normal expense against Corporation Tax.
Is a new kitchen an allowable expense?
It depends. Replacing a worn-out kitchen with a similar standard one is a repair and allowable. Fitting a noticeably better, higher-specification kitchen is an improvement, which is capital and not deductible against rental income, though it may reduce a future Capital Gains Tax bill.
Can I claim expenses before my property is let?
Yes, within limits. Pre-letting costs that would be allowable once you're trading, and that are incurred wholly and exclusively for the rental business in the seven years before letting begins, can usually be treated as if spent on day one of the let. Capital improvements made to get the property ready are not allowable as expenses.
Do I have to declare rental income under £1,000?
Usually no. If your gross property income for the year is £1,000 or less, the property allowance generally means you don't need to report it, though you should keep records. Above £1,000 you'll normally need to report it through Self Assessment.
Can I claim my own time spent managing the property?
No. You can't pay yourself a notional wage for managing your own rental property. You can claim genuine third-party costs, such as a letting agent or a cleaner, and a fair proportion of business travel.
