A guide to landlord allowable expenses 2021

Landlord Advice

1 September 2021

If you make money from renting out a property, you might need to complete a Self-Assessment return and pay tax on the money you earn. However, there are several expenses you can claim against your rental income profit which will reduce the amount of tax you owe.

Claiming allowable expenses as a landlord isn’t about avoiding paying tax, it’s about making sure you’re paying what’s fair.

AXA’s easy guide explains the ins and outs of allowable expenses so you know exactly what you can and can’t claim.

 

What are landlord allowable expenses?

Landlords can deduct some of the costs associated with being a landlord from the profit section of the Self-Assessment tax return.  Say for example you brought in £10,000 in rental income year and your landlord allowable expenses totalled £3,000, you’d only pay tax on £7,000.

However, HMRC has strict rules on what landlords can claim as an allowable expense. For a landlord cost to be an allowable expense, it must have come about exclusively for the purposes of renting out the property. That’s why it’s important to stay on top of your invoicing and keep all of your receipts.

 

What expenses can I claim as a landlord?

Knowing what expenses you can claim to reduce your landlord tax bill can be tricky. However, HMRC has published guidance for landlords which we’ve summarised in this easy guide.

You can claim for:

  • General maintenance and repairs

HMRC makes a clear distinction between property repairs and property improvements. The cost of redecorating or repairing a broken fixture can be an allowable expense as long as it’s a like-for-like repair or replacement. You can’t, for example, claim for replacing a laminate kitchen worktop with a granite worktop.

  • Utility bills

You can claim back the costs for a range of charges including ground rent, service charges (if you’re sub-letting), council tax and utility bills like gas and electricity. However, if the tenants are responsible for paying utility bills, you can only claim back this cost when the property is empty.  

  • Insurance

All of your landlord insurance policies are allowable expenses. This includes buildings, contents and public liability insurance, as well as any additional cover you buy to cover you for loss of rent. 

  • Fees for services

If you hire someone to carry out work in your rental property, you can claim for their fees as allowable expenses in your tax return. You can claim for the cost of workers like gardeners, cleaners and builders if they’re carrying out repair work and not home improvements.  

  • Travel costs

The travel and vehicle running costs to your rental property is an allowable expense. This includes public transport fares, petrol, vehicle tax and insurance. But remember you can’t claim for private or regular travel – it must be travel directly related to running your rental property.

  • Fees for professionals

Paying for professional services like accountancy, conveyancing and interior design can be classed as allowable expenses. You can also claim for solicitor fees in relation to debt collection or other legal issues related to the property.

  • Direct running costs

You can also claim for general running costs like your phone and broadband bill, office equipment and stationery. The costs of marketing your property including fees to letting agents, photography and advertising are also allowable expenses.  

You can’t claim for:

  • Capital expenditure such as buying a property, adding an extension or paying for furnishings can’t be classed as allowable expenses.
  • Clothing isn’t an allowable expense. Even if you bought a suit to wear to a meeting relating to your rental property, you can’t claim it on your tax return.
  • Personal expenses that don’t relate to your rental property can’t be claimed against your rental profit – this includes your private phone bill.

 

Property income allowance 2021

As a landlord, if you earn less than £1,000 a year from letting out a property, you don’t need to tell HMRC. So, you have a £1,000 tax-free property allowance. You should contact HMRC if your rental property income is between £1,000 and £2,500 a year and you’ll need to report the income on a Self-Assessment tax return if you earn:

  • £2,500 to £9,999 after allowable expenses
  • £10,000 or more before allowable expenses

Remember: from 6 April 2023, the government’s Making Tax Digital programme comes into effect for self-employed landlords. Read more about it here.

 

Simplified expenses for self-employed landlords

Simplified expenses are a way of calculating certain allowable expenses using flat rates, rather than working out individual costs. You can find out the flat rates by using the government’s simplified expenses checker here.

Simplified expenses can be used by self-employed people and business partnerships - they can’t be used by limited companies or business partnerships involving a limited company.

When it comes to simplified expenses as a landlord, you’ll want to think about:

  • Travel expenses – you can’t claim on regular travel between your home and place for work. You can claim for travelling to view new properties as long as you end up buying the property.
  • Staff expenses – you can pay people (even family members or friends) who carry out work related to the property as long as they don’t own a share of the property.

 Remember: Landlords who operate as a limited company can’t use simplified expenses

 

How to claim allowable expenses

When you add up all of your allowable expenses for the tax year, you put the total amount on your Self-Assessment tax return. At this stage, you don’t need to include receipts, but it’s still important to keep accurate records. HMRC can ask you for evidence at a later date and you might be fined for submitting incorrect information.

You should keep receipts for six years after you've filed your tax return. HMRC can investigate your landlord finances at any time within this period, so it's better to be safe than sorry. If you’re struggling to stay on top of things you could invest in accounting software to help you track your finances – there are plenty of inexpensive and free options to choose from.

For more information on how to claim your landlord allowable expenses, including the deadline for claiming, you should visit the GOV.UK website.

 

Being a landlord can be expensive. Thankfully, claiming back allowable expenses can help alleviate some of the financial pressure. As long as you keep accurate records and refer back to AXA’s allowable expenses guide, submitting your return to HMRC should be a lot easier. But if you're still unsure, you should speak to HMRC directly for advice.

 

You let it, we protect it – from just £130 a year*

  • Tailorable cover you choose to match your needs
  • Cover for up to ten properties with one policy
  • 0% interest on monthly instalments
  • 10% off when you buy direct online
  • In-depth how-to guides in our landlord insurance hub

* 10% of our customers paid this or less between January and March 2021.