Following the Government’s announcement in the Autumn Budget of plans to increase the rates of tax payable on rental income from April 2027, it is more important than ever for landlords to understand the tax reliefs and allowances available to them.

The proposed rates, which apply to landlords holding residential property in their own names rather than through a limited company, could see taxable rental profits taxed at a rate of 24 per cent for basic rate taxpayers and 44 per cent for higher rate taxpayers.

Ensuring that all available reliefs and allowable expenses are claimed can help minimise your tax liability and maximise the return on your property investment.

Wholly and Exclusively: Claiming Allowable Property Expenses

One of the key principles of property taxation is that expenses can generally only be deducted if they are incurred wholly and exclusively for the purposes of the property rental business. Where this condition is met, the expense can usually be claimed against rental income, reducing the taxable rental profit and, ultimately, the amount of Income Tax payable.

Common examples of allowable expenses include:

  • Property repairs and maintenance costs (provided these do not constitute capital improvements);
  • The replacement of domestic items such as furniture, furnishings, carpets, white goods and other household appliances;
  • Letting agent fees and property management charges;
  • Accountancy and professional fees relating to the rental business;
  • Landlord insurance premiums;
  • Ground rent and service charges;
  • Advertising costs incurred in finding tenants; and
  • Other running costs paid by the landlord, such as council tax, utilities and cleaning costs, where these are the landlord’s responsibility under the tenancy agreement.

It is important to retain adequate records of all expenses claimed, including invoices, receipts and other supporting documentation. Good record keeping will help support any claims made and ensure that all available tax reliefs are maximised.

Finance Costs Relief

Finance costs on residential rental properties are treated differently from most other allowable expenses. For individual landlords, mortgage interest and other qualifying finance costs cannot generally be deducted from rental income when calculating taxable rental profits. Instead, relief is given as a basic rate tax reduction of 20% of the qualifying finance costs.

This means that while basic rate taxpayers may receive relief equivalent to the tax they would otherwise have paid on the interest, higher and additional rate taxpayers receive relief at only 20%, regardless of their marginal rate of tax. As a result, the restriction can significantly increase the overall tax burden for some landlords.

It is therefore important for landlords to understand how the finance cost restriction operates and to factor this into their property investment and financing decisions.

Revenue V Capital Expenditure

It is important to distinguish between revenue and capital expenditure. Revenue costs generally relate to the ongoing repair and maintenance of a property and can usually be claimed against rental income, as discussed above.

Capital expenditure relates to improvements or enhancements that increase the value, of a property. Unlike revenue costs, these expenses do not normally attract tax relief when incurred. Instead, they may be taken into account when the property is sold, reducing any Capital Gains Tax liability that arises.

Capital Gains Tax is another important consideration when a property is sold. Depending on your circumstances, certain costs and reliefs can reduce the taxable gain. For example, if a property has previously been your main home, you may be entitled to Private Residence Relief for qualifying periods

How can we help?

Understanding the difference between allowable expenses, capital costs and tax reliefs is important when managing your property tax affairs.

Our property tax specialists can help support you when you are looking for ways to minimise your tax through reliefs.

For support with landlord reliefs, get in touch with our team.