Buy-to-Let Allowable Expenses 2026/27: The Complete Landlord Guide

The Starting Point: What Is Allowable?

HMRC allows landlords to deduct expenses that are incurred wholly and exclusively for the purposes of the rental business. This is the fundamental test -- an expense that serves a dual purpose (partly personal, partly business) is not deductible unless there is a clearly separable business element.

The expenses must also be revenue in nature (not capital) and must relate to the tax year in which they are incurred, not when they are paid (though for most landlords the cash basis and accruals basis produce similar results for regular expenses).

Finance Costs: The Section 24 Restriction

This is the most significant change for residential landlords in the past decade. Since April 2020, the deduction for finance costs (mortgage interest and other loan interest related to the letting) has been replaced by a basic rate tax credit.

How It Works

Instead of deducting mortgage interest from rental income, individual landlords:

1. Calculate rental profit without any deduction for finance costs
2. Pay income tax on that full profit at their marginal rate
3. Receive a tax credit equal to 20% of the lower of (a) the finance costs and (b) the rental profit

Example: Rental income 20,000 pounds, other expenses 5,000 pounds, mortgage interest 10,000 pounds.

Under the old rules: Taxable profit = 20,000 - 5,000 - 10,000 = 5,000 pounds.

Under Section 24: Taxable profit = 20,000 - 5,000 = 15,000 pounds. Income tax (40% higher rate) = 6,000 pounds. Tax credit = 20% x 10,000 = 2,000 pounds. Net tax = 4,000 pounds.

The effective tax on rental profit is dramatically higher for higher-rate and additional-rate taxpayers.

What Finance Costs Are Covered?

The restriction applies to:

• Mortgage interest on a buy-to-let loan
• Interest on a loan to fund repairs or improvements (if the loan is secured on the property)
• Arrangement fees on mortgages (the interest element)
• Overdraft interest if the overdraft is used for the property business

It does not restrict the deduction of mortgage arrangement fees that are treated as capital (these are added to the base cost for CGT).

Fully Deductible Revenue Expenses

The following are commonly deductible for landlords:

Letting Agent Fees and Management Charges

Letting agent fees -- whether for finding tenants, managing the property, or both -- are fully deductible. This includes:

• Tenant find fees (typically 8-12% of the first month's rent)
• Full management fees (typically 10-15% of monthly rent)
• Renewal fees
• Check-in and check-out inventory fees

Repairs and Maintenance

Repairs that restore the property to its previous condition are fully deductible. This is the single largest category of ongoing expenses for most landlords.

Deductible repair examples:

• Repairing a broken boiler (replacing like-for-like)
• Fixing a leaking roof
• Redecorating (painting and wallpapering)
• Replacing broken windows (like-for-like)
• Plumbing and electrical repairs
• Repointing brickwork
• Replacing a section of fence that has rotted

Not deductible (capital improvement) examples:

• Adding a conservatory or extension
• Converting a loft
• Installing central heating where there was previously none
• Replacing single glazing with double glazing throughout (treated as an improvement)
• Installing an en suite bathroom in a room that previously had none

The key distinction: does the work restore what was there (repair) or does it enhance beyond the original state (improvement)?

Insurance Premiums

Landlord insurance -- including buildings insurance, contents insurance, and rental income protection insurance -- is fully deductible. Standard home insurance is not sufficient for a let property and is not deductible against rental income.

Utilities and Services

If the landlord pays utilities (gas, electricity, water, internet) rather than the tenant, these are deductible. Council tax paid by the landlord during void periods (when no tenant is in occupation) is also deductible.

Professional Fees

Legal and professional fees are deductible where they relate to the ongoing management of the letting business:

• Accountant fees for preparing the rental income section of the tax return
• Solicitor fees for renewing an existing lease (not creating a new one)
• Fees for pursuing rent arrears through the courts
• Fees for eviction proceedings

Not deductible: Legal fees for acquiring the property (these are capital), or for a first lease grant (capital).

Ground Rent and Service Charges

Where the landlord owns a leasehold property, ground rent and service charges are deductible expenses. Where the landlord manages a freehold with a residents management company, contributions to the service charge fund are similarly deductible.

Advertising Costs

Costs of advertising the property for rent -- whether through an online portal, a local newspaper, or a letting board -- are fully deductible.

Travel Expenses

Travel costs are deductible where the landlord travels to inspect the property, carry out repairs, or meet with tenants. HMRC does not allow commuting (which is travel between home and a permanent workplace), but property visits are generally accepted. The mileage rate of 45p per mile (for the first 10,000 miles) applies if you use your own car.

Replacement of Domestic Items

Following the abolition of the Wear and Tear Allowance (in 2016), landlords of fully furnished residential properties can now claim Replacement of Domestic Items Relief. This allows a deduction for the cost of replacing:

• Furniture (sofas, beds, tables)
• Appliances (washing machines, fridges, cookers)
• Kitchenware (crockery, cutlery)
• Carpets and flooring (where replaced like-for-like)

The relief covers the replacement cost only -- not the original purchase of an item when the property was first let. If a like-for-like replacement is not available and the landlord upgrades (for example, replacing a basic washing machine with a more expensive model), only the cost of a like-for-like equivalent is deductible; any additional cost is not.

The FHL Abolition: What Changed from April 2025

The Furnished Holiday Lettings (FHL) regime was abolished with effect from 6 April 2025. Properties that previously qualified as FHLs (let furnished for at least 105 days in a qualifying year, with certain other conditions) are now taxed under the standard residential letting rules.

The key reliefs lost with the FHL abolition were:

• Capital allowances: FHL landlords could claim plant and machinery capital allowances on furniture and equipment. Standard residential landlords cannot (they get Replacement of Domestic Items Relief instead, which is more limited).
• BADR: Business Asset Disposal Relief (18% CGT rate) was available on FHL property. It is no longer available for short-let properties.
• Pension contributions: FHL profits counted as relevant UK earnings for pension contribution purposes. Standard rental income does not.
• Business reliefs: Rollover relief, gift relief, and other business asset reliefs were available to FHL landlords. They are not available for standard lets.

For former FHL operators, 2025/26 and 2026/27 represent a significantly less favourable tax environment. The abolition may make commercial property or other investments more attractive by comparison.

Capital Expenditure: Not Deductible but Not Wasted

Capital expenditure -- improvements, extensions, conversions -- cannot be deducted from rental income. However, it is not wasted from a tax perspective. Capital expenditure is added to the base cost of the property, reducing the capital gain when the property is eventually sold.

For CGT purposes (2026/27):

• CGT annual exempt amount: 3,000 pounds
• Residential property CGT rate: 18% (basic rate) or 24% (higher/additional rate)

Keeping meticulous records of all capital expenditure -- with dated invoices and planning documents where relevant -- is essential for reducing the CGT liability on sale.

Record-Keeping: What HMRC Expects

HMRC expects landlords to retain records for at least five years after the 31 January submission deadline for the relevant tax year. This means records from 2026/27 must be kept until at least 31 January 2033.

Records to keep:

• Tenancy agreements and rent schedules
• All invoices and receipts for expenses
• Bank statements showing income and expenditure
• Correspondence with letting agents
• Evidence of repairs (before-and-after photographs are useful)
• Mortgage statements showing interest charged

If you claim expenses without receipts during an HMRC enquiry, those claims are likely to be disallowed.

Summary

The allowable expenses regime for buy-to-let landlords remains broad despite the Section 24 finance cost restriction and the FHL abolition. Repairs, management fees, insurance, professional fees, and domestic item replacements are all deductible. The key discipline is understanding the capital vs revenue distinction, maintaining thorough records, and understanding how the Section 24 restriction affects your effective tax rate. Higher-rate taxpayers in particular should model whether holding property through a limited company produces a more favourable outcome.