Tax relief for the expenses of running a property business

If you’re running a property business, understanding which expenses qualify for tax relief is essential to maximising your profits and keeping your tax bill as low as possible. Many landlords and property investors miss out on legitimate deductions simply because they’re unsure what HMRC allows. In this post, we’ll walk through the key expenses you can claim, how to record them properly, and what pitfalls to avoid.

What counts as a deductible expense?

HMRC’s rule is straightforward in principle: you can claim tax relief on any expense that is incurred wholly and exclusively for the purposes of your property business. The key word here is “exclusively” — if an expense has a dual purpose or personal benefit, it won’t qualify.

For lettings income, you can claim relief on expenses such as mortgage interest (though not the capital repayment), council tax, water rates, insurance, repairs and maintenance, letting agent fees, accountancy fees, and advertising for tenants. You can also claim capital allowances on certain fixtures and fittings — more on that below.

What you cannot claim includes capital expenditure on improvements (such as building an extension or installing a new kitchen), personal expenses, or any costs relating to properties you use yourself. If you’re unsure whether something falls into the capital or revenue category, it’s worth getting professional advice, as the distinction can be complex.

Mortgage interest relief — recent changes

If you’re a buy-to-let landlord with a residential property, it’s crucial to understand the current position on mortgage interest relief. Until April 2017, all landlords could claim full relief on their mortgage interest. However, the rules have changed significantly.

From the 2022/23 tax year onwards, higher-rate and additional-rate taxpayers receive relief at the basic rate (20%) only, rather than at their marginal rate. This means if you’re a higher-rate taxpayer paying 40% tax, you’ll only get 20% relief on your mortgage interest. This has had a substantial impact on many landlords’ tax positions, and it’s something we regularly discuss with our clients.

It’s essential to factor this into your financial planning and to understand your tax position fully. If you’re affected, we’d recommend reviewing your property portfolio strategy and exploring options with a qualified accountant.

Capital allowances and plant and machinery

One area where many property investors can save significant tax is through capital allowances. Whilst you cannot claim relief on improvements to the structure of the building, you can claim capital allowances on certain items of plant and machinery that are installed in the property.

Examples include fitted kitchens, bathrooms, built-in wardrobes, carpets, curtains, and certain types of flooring. You can claim an annual investment allowance (AIA) of up to £1,000,000 per year (for the 2024/25 tax year), which allows you to write off the full cost of qualifying plant and machinery in the year it’s purchased, rather than spreading the cost over several years.

This is an area where professional guidance really pays for itself. A proper plant and machinery valuation can unlock substantial tax savings, and HMRC takes this seriously — so claims must be well documented and defensible.

Record-keeping and staying compliant

HMRC expects landlords to keep detailed records of all income and expenses. You should retain invoices, receipts, bank statements, and proof of payment for at least five years. This is especially important if you’re selected for an HMRC enquiry, which can happen at any time within four years of the end of the tax year (or longer if HMRC suspects deliberate error).

Using cloud-based accounting software makes this much easier. Many platforms allow you to photograph receipts on the spot and categorise expenses automatically, which saves time and reduces the risk of errors.

Getting professional help

Whilst it’s possible to file your own Self Assessment return, the complexity of property tax — particularly with the mortgage interest relief restrictions and capital allowances rules — means that professional advice often pays for itself many times over.

We regularly find that landlords have either missed out on significant reliefs or made errors that attract HMRC’s attention. A qualified accountant can help you structure your property business tax-efficiently, ensure compliance, and give you confidence in your return.

For tailored advice, contact Severn Accounting — we’re here to help.