A Guide to Tax Deductible Costs for Your Landlord Tax Return

Are you claiming all the tax-deductible expenses you’re entitled to? Whether you own one rental property or a whole portfolio, claiming allowable expenses can help reduce your tax bill.

From repairs and maintenance to landlord insurance, many of the day-to-day costs of letting can be claimed, provided they’re wholly and exclusively for your rental business and you’ve kept good records.

Our guide explains which expenses you can claim and how to make sure you’re not missing out.

1. Do landlords pay tax on rent?
2. Allowable expenses for landlords
3. Common costs you can’t claim
4. Is mortgage interest tax deductible?
5. What are the benefits of incorporating a limited company?

Do landlords pay tax on rent?

Rent and some other payments you receive from tenants count as income, and if it exceeds certain thresholds, you must pay tax on it.

The first £1,000 of your income from property rental is tax-free. This is called your ‘property allowance’.

However, how you report this income has fundamentally changed with the official rollout of Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA).

If your gross annual income from property (or property combined with self-employment) is £50,000 or more, you are now legally required to keep digital records and submit quarterly updates to HMRC using compatible software, rather than submitting a traditional yearly Self Assessment tax return.

For unincorporated landlords earning below £50,000, the standard Self Assessment system remains your main reporting route for now. However, the MTD threshold is scheduled to drop to £30,000 in April 2027, bringing thousands more landlords into the quarterly digital regime.

If you don’t fall under the new MTD rules, you must still report your rental income on a Self Assessment tax return if it’s more than £2,500 after allowable expenses or more than £10,000 before allowable expenses. For those filing a traditional tax return, the deadline for submitting your Self Assessment is still 31st January.

Rental profits are taxed at the same rates as other income, such as wages or business earnings. The rates are 0%, 20%, 40%, or 45%, depending on your tax band. Your rental earnings are added to your other sources of income, which could push you into a higher tax bracket.

For example, if you earn £40,000 from your job and make £15,000 in rental profit, your total income would be £55,000. This amount would exceed the higher-rate tax threshold (£50,271), so you would pay 40% tax on the £4,729 that goes above this limit.

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You might also be interested in…

• A Guide to Tax Deductible Costs for Your Landlord Tax Return
• How to Gain a Possession Order
• How Much Notice Does a Tenant Have to Give a Landlord to Move Out?
• Holding Deposit, Tenancy Deposit, Rental Fees: Everything You Need to Know
• How Can I Attract More Tenants to My Property Listing?

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Allowable expenses for landlords

You can claim tax relief on a wide range of costs associated with running your rental property, so it’s worth keeping accurate records throughout the year.

Hold on to invoices, receipts and any other documents relating to your rental business. Good record-keeping makes completing your tax return much easier and gives you the evidence you need if HMRC ever asks you to support a claim.

If you use OpenRent’s Rent Now and book services through us, many of your key tenancy documents, certificates and invoices are stored securely in your OpenRent account, making it easier to keep everything organised at tax return time.

1. Repairs and maintenance costs

You can usually claim the cost of repairs and maintenance needed to keep your property in good condition. This includes work such as fixing leaks, repairing windows, servicing a boiler, or dealing with heating problems.

You can also claim the cost of essential safety checks, including your annual gas safety certificate and Electrical Installation Condition Report (EICR).

If you book these services through OpenRent, we’ll automatically store your invoices and certificates in your account, making it easier to keep accurate records and prepare your tax return.

2. Water rates, council tax, gas and electricity

When you include bills like water rates, council tax, gas, and electricity as part of the rent, you can claim these costs as allowable expenses. In this case, you’re effectively covering the bills for your tenant, but since you’re paying them to keep the property running, you can deduct these costs from your taxable rental income.

However, under the 2026 Written Statement of Terms regulations, a bills-inclusive arrangement must be explicitly itemised in your periodic tenancy agreement, detailing exactly how utilities are split.

Additionally, any gas or electricity charges must strictly reflect the actual costs you incur, adhering to Ofgem’s maximum resale rules; charging any hidden markup is classed as a prohibited fee under the Tenant Fees Act.

3. Insurance

The cost of insuring your rental property is generally an allowable expense. This includes landlord insurance, contents insurance for any furnishings you provide, and other policies taken out specifically for your rental business.

Depending on your cover, your policy may protect you against property damage, liability claims, or lost rental income if the property becomes uninhabitable.

4. Letting agent, platform and management fees

If you don’t self-manage every single aspect of your let, any fees you pay to third parties to help run the property are fully tax-deductible. This includes:  

• Letting agent commission (for tenant find or full management).  
• Platform fees, such as OpenRent’s Rent Now setup or advertising packages.  
• Inventory clerk fees and check-out inspection costs.

5. Professional and legal fees  

You can deduct the cost of hiring professional help to run your rental business, provided the work is not a capital expense (like the legal costs of buying the property itself). You can claim for:  

• Accountancy fees for preparing your rental accounts, calculating your tax liability, or helping you set up digital bookkeeping systems.  
• Legal fees for tenant management, such as hiring a solicitor to draft bespoke tenancy terms, serve a valid Section 8 notice under the Renters’ Rights Act, represent you in court for possession, or pursue rent arrears.  
• Tenant referencing and credit check fees, which landlords must pay for out of pocket as referencing charges cannot be passed onto tenants under the Tenant Fees Act.

6. Ground rent and service charges

If your rental property is leasehold, which is common for flats and maisonettes, you may be able to claim certain ongoing costs as allowable expenses.

This can include service charges paid to the freeholder or managing agent for things like communal cleaning, lift maintenance, and upkeep of shared areas.

Ground rent payments may also be included as an allowable expense.

7. Costs of services

You can claim the cost of services provided for your rental property. This includes expenses such as paying gardeners, cleaners, or other contractors who help maintain and manage the property.

8. Travel expenses

You can claim back travel costs incurred while running your property business, such as visiting your rentals for periodic inspections or driving to meet contractors.

Following the 2026 tax reforms, the simplified mileage rate has officially been raised to 55p per mile (up from the historic 45p rate) for the first 10,000 business miles in the tax year, and 25p per mile thereafter.

Alternatively, you can claim the business-use proportion of your actual vehicle running costs (fuel, servicing, insurance, and road tax), but you must keep a log of all journeys to prove the mileage was “wholly and exclusively” for business purposes.

While unincorporated landlords claim this as “simplified expenses” on their self-assessment, limited companies can similarly reimburse directors and employees at the exact same tax-free AMAP rate of 55p per mile, rather than having to calculate and claim actual vehicle running costs.

9. Admin, memberships and subscriptions

The day-to-day costs of managing your rental property can often be claimed as allowable expenses. This includes things like phone calls relating to your property, stationery, postage, and advertising costs when looking for new tenants.

You can also claim for professional memberships, such as joining a recognised landlord organisation, as well as subscriptions to property management software or digital tax-filing tools.

These digital tools are becoming increasingly relevant as more landlords move towards quarterly reporting under Making Tax Digital (MTD).

10. Working from home/ home office costs

If you actively manage your properties, inspect paperwork, and answer tenant emails from home, you can legally claim a portion of your household running costs to lower your tax bill.

You have two options to calculate this deduction:

• HMRC’s simplified flat-rate: Providing you spend 25 hours or more a month working from home on your property business, you can use HMRC’s flat-rate simplified expenses. This allows you to claim a hassle-free flat rate of £10, £18, or £26 per month (depending on your hours), without needing to calculate any household bills.
• Actual costs method: Alternatively, you can calculate and claim a proportion of your actual bills (such as electricity, gas, water, and broadband) based on a “reasonable” apportionment (typically dividing your utility bills by the number of rooms, and weighting by business use).

Keep in mind, this is an area HMRC scrutinises with a fine-tooth comb. Proving that domestic running costs are incurred “wholly and exclusively” for your property business is usually difficult. If you use a platform like OpenRent to manage your properties, HMRC may challenge high actual claims, arguing that your hands-off setup doesn’t justify substantial administrative hours at home.

There is also a capital gains trap to watch out for: if you claim a specific room in your house is used exclusively for your property business to justify deducting actual household bills, you will automatically lose your Capital Gains Tax (CGT) Private Residence Relief on that portion of your home when you eventually sell it. To avoid this, always ensure the room maintains some shared domestic use.

11. Replacement furniture and white goods

You’re also allowed tax relief on costs for replacing items considered ‘domestic,’ such as beds, carpets, sofas, fridges, and more.

This “Replacement of domestic items relief” (which replaced the old wear-and-tear allowance) section only applies when an item is actually replaced and is no longer being used in the property. You can only claim for a like-for-like replacement, meaning the new item should be similar or identical in terms of function, type, quality, and price to the one it’s replacing.

12. Bad debts (unpaid rent)

If a tenant leaves with unpaid rent and you have taken reasonable steps to recover the money without success, you may be able to write off the amount as a bad debt.

If you use traditional accrual accounting, where rental income is recorded when it becomes due rather than when it is received, you can claim unrecoverable rent as an allowable expense. This prevents you from being taxed on income you never actually received.

Under the cash basis system, unpaid rent is simply not counted as rental income.

Common costs you can’t claim

It’s just as important to understand which costs aren’t tax-deductible as the ones that are; otherwise, you risk an unwelcome tap on the shoulder from HMRC.

The upfront costs of buying a property can’t be offset against your ongoing monthly rental income. This includes expenses such as Stamp Duty (or Land and Buildings Transaction Tax in Scotland, and Land Transaction Tax in Wales), purchase-related legal fees, survey costs, and auctioneer’s fees, as they’re treated as part of the property’s capital purchase cost.

Instead, you need to tuck those receipts away safely, as these costs are usually taken into account when calculating your Capital Gains Tax (CGT) liability if and when you sell the property in the future.

A quick tip on the mortgage fee exception: While legal and survey fees for buying the property are capital costs, any broker fees, valuation charges, or legal costs directly tied to arranging your mortgage are treated as finance costs rather than capital purchase costs. For individual landlords, these are eligible for the 20% tax credit, while limited company landlords can deduct them as a business expense in full.

Is mortgage interest tax deductible?

Not in the same way as it used to be.

Before April 2020, individual landlords could deduct 100% of their mortgage interest payments from their rental income before calculating their tax bill. 

That generous relief has now been entirely replaced with a tax credit worth 20% of your annual mortgage interest costs. For many landlords, especially those in the higher or additional-rate tax bands, this means the tax saving is significantly lower than it was under the old system.

It’s also worth noting that this 20% tax reduction is strictly capped. HMRC limits the credit to the lowest of your actual finance costs, your net property profits, or your adjusted total income exceeding the Personal Allowance. If your properties make a loss or your overall income is low, any unused relief is carried forward to future years rather than refunded.

Moroever, under Making Tax Digital (MTD), HMRC assesses the qualifying reporting threshold using your gross rental income before mortgage interest relief or any other allowable expenses are taken into account. For the tax year starting 6th April 2026, this threshold is £50,000, though it is scheduled to drop to £30,000 in April 2027 and £20,000 in April 2028.

As a result, even if your actual profit is relatively modest once you’ve paid the bank, a high level of top-line rental income could still bring you into the mandatory quarterly reporting regime much sooner than you think.

What are the benefits of incorporating a limited company?  

Investing through a limited company has several perks that can benefit landlords.

Firstly, when it comes to financing costs like mortgage payments, these are seen as business expenses for tax purposes. This means you can deduct them from your taxable profits, resulting in a lower tax bill compared to individual landlords who pay income tax.

The rate of corporation tax (19%) is lower than the basic rate of income tax (20%). However, you must watch out for the marginal rate. While the 19% Small Profits Rate applies to profits up to £50,000 and the 25% Main Rate applies over £250,000, any profits sitting between these two thresholds are subject to Marginal Relief. This creates an effective tax rate of 26.5% on profits in this middle band.

Moreover, when it comes to dividends (the money you get from your company’s profits), they’re generally taxed more favourably than personal income. However, for the 2026/27 tax year, the tax-free dividend allowance remains capped at just £500.

Also, HMRC has raised dividend tax rates by 2% across basic and higher bands. Basic-rate taxpayers now pay 10.75% (up from 8.75%) on dividend income above the allowance, while higher-rate taxpayers pay 35.75% (up from 33.75%).

If you sell a property and make a profit, the tax you pay on it is called corporation tax, which is often simpler to deal with than capital gains tax. Plus, companies are not subject to the strict 60-day reporting and payment window for residential property capital gains that individual landlords face; instead, the gains are simply handled via your standard annual corporate tax return.

Most importantly, limited companies are completely exempt from the new Making Tax Digital (MTD) quarterly reporting requirements for Income Tax. While individual landlords earning over £50,000 must now file quarterly digital updates, corporate structures are entirely exempt.

Moving existing properties is harder in 2026

The challenge for you is to work out whether this is all worth it. For landlords with a large number of properties, enjoying higher rental incomes and benefiting from more tax-efficient dividends will likely make sense. The advantages will outweigh the extra cost involved in setting up and maintaining a limited company.

However, if you are planning to transfer personally owned properties into a new company, the “frictional” entry costs have risen significantly:

• The 5% Stamp Duty surcharge: Your company will have to pay Stamp Duty on the transfer at current market values, including a hefty 5% surcharge for additional residential properties.
• Active claims for CGT relief: Since 6th April 2026, Section 162 Incorporation Relief (which lets you defer Capital Gains Tax on the transfer) is no longer automatic. You must actively claim it on your tax return and prove to HMRC that you actively spend enough time managing your portfolio to qualify as a “business”.  

If you have only one or two rental properties, however, with no plans to expand your portfolio, then working out your tax liability and paying HMRC via standard Self Assessment and adapting to the new MTD requirements will likely remain your preferred, and much cheaper, choice.

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