Pillar Guide · Updated June 2026
UK Property Allowable Expenses Guide 2026/27: Buy-to-Let Tax Deductions
Getting your expenses right is the single most controllable lever on your rental profit and your tax bill. Claim too little and you overpay tax; claim capital spending as revenue and you invite an HMRC enquiry. This guide sets out exactly what UK landlords can and cannot deduct from rental income in 2026/27 -- covering allowable revenue expenses, the all-important capital vs revenue distinction, the replacement of domestic items relief that took over from the old wear and tear allowance, the Section 24 mortgage interest restriction, and what the abolition of Furnished Holiday Lettings means for former FHL landlords. Records and forthcoming MTD ITSA obligations are also covered.
Allowable Revenue Expenses
An expense is deductible if it is incurred wholly and exclusively for the purposes of the property rental business and is revenue (not capital) in nature. HMRC publishes guidance in its Property Income Manual (PIM), and the main allowable categories for residential lettings are:
| Expense category | Notes |
|---|---|
| Letting agent fees | Management, renewal and letting fees charged by agents |
| Landlord insurance | Buildings, contents, rent guarantee and liability policies |
| Repairs and maintenance | Like-for-like repairs only; improvements are capital |
| Accountancy and legal fees | For short lease renewals (under 1 yr) or tax returns |
| Advertising costs | Finding tenants via portals, agents or direct advertising |
| Ground rent and service charges | On leasehold properties paid by the landlord |
| Utilities paid by landlord | Council tax, water, gas, electricity in void periods |
| Travel costs | To inspect or manage the property -- keep a log |
| Stationery and admin | Reasonable proportion for running the business |
Finance costs (mortgage interest) are no longer deductible directly -- see the Section 24 section below. The cost of the property itself, any extension or improvement, and stamp duty land tax on purchase are capital costs and not deductible against rental income.
Capital vs Revenue Distinction
The most contested area in landlord taxation is whether a given item of expenditure is capital or revenue. The distinction matters enormously: revenue is deductible now, capital is not (it merely reduces the CGT gain on disposal, often decades later).
Revenue expenditure restores the property to its previous condition without improving it. Repainting, fixing a leaking roof tile, repairing a broken boiler, mending guttering -- these are revenue. Replacing a window with the same type of window is revenue even if modern double-glazing is more energy-efficient, because the improvement is incidental to the replacement.
Capital expenditure improves the property, extends its useful life, or brings in a new asset. Adding a conservatory, converting a loft, installing central heating where none existed, replacing a basic kitchen with a high-specification fitted kitchen, or buying a new piece of equipment for the property are all capital.
The line can be blurry. HMRC's Property Income Manual (PIM2020 et seq.) gives detailed guidance. Key factors are: does the work make the property materially better than it was before (capital), or merely restore it to working order (revenue)? Courts have sometimes allowed the full cost of necessary replacement where repair would have been impractical -- but HMRC tends to scrutinise large claimed repairs closely.
Where work is a mixture of repair and improvement, you may be able to apportion -- claiming the repair element as revenue and adding the improvement element to base cost. Keep detailed contractor invoices and, where possible, get the contractor to split the invoice into repair and improvement components.
Replacement of Domestic Items Relief
Residential landlords can claim replacement of domestic items relief (RoDI relief) when they replace a domestic item that has become unusable and is no longer in use in the property. This covers:
- Moveable furniture (sofas, beds, wardrobes)
- Furnishings (curtains, carpets, cushions)
- Household appliances (washing machines, fridges, dishwashers)
- Kitchenware (crockery, cutlery, pots)
The relief is capped at the cost of a like-for-like replacement at current prices. If you replace a basic washing machine with a premium model, only the cost of an equivalent basic machine is deductible -- the premium portion is not. Any disposal proceeds (trade-in value or sale of the old item) reduce the deductible amount.
RoDI relief does not apply to:
- The initial furnishing of a property -- only replacements qualify, not first-time purchases. Initial furniture is a capital cost.
- Fixtures integral to the building: fitted kitchens, bathroom suites, boilers, radiators. These are assessed under the capital vs revenue rules.
- Commercial or furnished holiday let properties (FHL ceased from April 2025; former FHL properties now fall under the residential rules).
RoDI relief was introduced in April 2016 to replace the old 10% wear and tear allowance, which had allowed furnished lettings landlords to deduct a flat 10% of net rent regardless of whether they had replaced anything. The current system is more accurate but requires landlords to keep receipts and records of what was replaced and when.
Mortgage Interest Restriction (Section 24)
From April 2020, individual landlords (including those in partnerships) can no longer deduct mortgage interest and other finance costs directly from rental income. The rules under Section 24 of the Finance (No. 2) Act 2015 -- now fully phased in -- replace the direct deduction with a 20% tax credit equal to the lower of:
- The finance costs for the year
- The property profits (before finance costs)
- Total income in excess of the personal allowance
In practice, you calculate profit before deducting finance costs, declare that higher figure as your rental profit, pay income tax at your marginal rate, and then subtract the 20% credit. For a basic-rate (20%) taxpayer this is broadly neutral. For a higher-rate (40%) or additional-rate (45%) taxpayer, the net effect is a significant tax increase because you are now paying tax at 40--45% on income the mortgage used to shelter, receiving only 20p back per pound of finance cost.
Section 24 can also push landlords into higher tax bands. A landlord with £30,000 of rental profit and £20,000 of mortgage interest would previously have declared £10,000 profit; now they declare £30,000 profit (potentially losing personal allowance or entering the 40% band on other income) and receive a £4,000 credit. The credit is also non-refundable -- if your income tax bill is less than the credit, the remainder is simply lost.
Limited companies are not subject to Section 24. Landlords considering incorporation to sidestep the restriction should model the full costs: SDLT on transfer to the company (usually), loss of Private Residence Relief if the property was ever a home, CGT on the transfer, and the dual-tax problem of extracting profit from the company via salary or dividends. Incorporation makes sense for some portfolios but not all.
Wear and Tear Allowance -- Abolished
The 10% wear and tear allowance was abolished from 6 April 2016. Before that date, landlords of furnished residential properties could deduct a flat 10% of net rent each year as a proxy for the cost of replacing furniture and fittings, regardless of whether they actually spent anything.
From April 2016 it was replaced by the replacement of domestic items relief described above. Unlike the old wear and tear allowance, RoDI relief is based on actual replacement costs rather than a percentage of rent, requires the old item to be disposed of or taken out of use, and covers all residential lettings (not only fully furnished ones). No claim is possible under the old wear and tear rules for any year from 2016/17 onwards. If you received advice before 2016 recommending the wear and tear allowance, review your current position to ensure you are claiming the correct relief.
FHL Abolition 2025
The Furnished Holiday Lettings (FHL) regime was abolished from 6 April 2025. Properties that previously qualified as FHLs are now taxed as ordinary residential lettings with no special treatment.
The key reliefs that FHL landlords have lost:
- Capital allowances on furniture, fixtures and equipment -- formerly available to FHL landlords but not to residential landlords. Former FHL landlords should claim a balancing allowance on any remaining capital allowance pool.
- Business Asset Disposal Relief (BADR)on sale -- the 18% CGT rate is no longer available on FHL disposals. Gains are now taxed at 18% or 24% (residential property rates) depending on the taxpayer's rate band.
- Pension contribution treatment -- FHL profits no longer count as relevant UK earnings for pension contribution purposes.
- Loss relief against other income -- FHL losses could previously be offset against other income in certain circumstances; residential property losses are ring-fenced.
Former FHL landlords now claim RoDI relief for replacing domestic items in the same way as any other residential landlord. The standard revenue/capital distinction applies to all maintenance and improvement work. Mortgage interest attracts only the 20% tax credit under Section 24 for individuals.
Record-Keeping
HMRC expects landlords to retain records for at least 5 years and 10 months after the end of the relevant tax year (for example, records for 2025/26 must be kept until 31 January 2032). The minimum records are:
- Tenancy agreements and rent books or bank statements showing income received
- Letting agent statements (monthly or annual)
- Invoices and receipts for every allowable expense
- Mortgage statements showing total interest paid each year
- Insurance renewal certificates and premium receipts
- Receipts and descriptions for RoDI relief claims (what was replaced, what with)
- Capital expenditure records for CGT base cost (invoices, completion statements)
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will require landlords whose property income combined with self-employment income exceeds £50,000 to keep digital records and submit quarterly updates to HMRC from April 2026. Those between £30,000 and £50,000 follow from April 2027. Records will need to be kept in HMRC-compatible software or bridging software. HMRC has published a list of compatible products on its website.
Even before MTD ITSA is mandatory, using a simple spreadsheet or landlord accounting app saves hours at Self Assessment time and makes it straightforward to demonstrate that claimed deductions are genuine.