Buy to Let Tax Allowances: Expenses, Mortgage Credit, and Relief

Buy-to-let tax allowances let you cut the tax on your rental income in three main ways: deducting the running costs of the property from the rent you receive, claiming a 20% tax credit for mortgage interest and other finance costs, and claiming Replacement of Domestic Items Relief when you swap out furniture or appliances. A flat £1,000 property allowance is available as an alternative to claiming actual expenses if your costs are very low. Rental profit is added to your other income and taxed at your marginal rate, so each of these reliefs is worth more the higher up the bands you sit.

How Your Rental Profit Is Worked Out

Your taxable rental profit is the rent you receive in the tax year (6 April to 5 April) minus your allowable expenses. That profit stacks on top of your salary, pension, and any other income, and gets taxed at whichever band it falls into: 20% up to £37,700 of taxable income above the personal allowance, 40% from £37,701 to £125,140, and 45% above that. The personal allowance itself covers the first £12,570 of total income. Scottish rates differ.

Rental income does not attract National Insurance for most individual landlords. But the stacking effect matters: if your job already puts you at £45,000, every pound of rental profit is taxed at 40% from the first pound.

Running Costs You Can Deduct

You can deduct any expense incurred “wholly and exclusively” for the property business.¹ The usual ones are:²

Letting agent commissions and management fees.
Landlord buildings and contents insurance, and public liability cover.
Maintenance and repairs: fixing a boiler, repainting, patching a roof leak.
Utilities you pay on behalf of the property: water rates, council tax, gas, electricity.
Ground rents and service charges on leasehold flats.
Accountant fees for your return, and legal costs for tenancy agreements of a year or less or lease renewals under 50 years.
Phone calls about the property, stationery, and advertising for tenants.
Travel to the property for inspections, maintenance, or tenant matters.

For travel, you can use HMRC’s approved mileage rate of 45p per mile for the first 10,000 business miles in the tax year, then 25p per mile after that.³ Alternatively, claim the business proportion of actual vehicle running costs.

One thing you cannot deduct is your full mortgage payment. Only the interest portion qualifies for relief, and it now comes through a tax credit rather than a straight deduction. The principal repayment is your own investment in the property and has no effect on the tax calculation.²

Repairs Versus Improvements

Repairs restore something to its previous condition and are fully deductible from rental income in the year you incur them. Improvements add something new or upgrade the property, and they are capital expenditure that you cannot deduct against rent. The distinction catches out a lot of landlords.

HMRC treats the question as one of fact and degree in each case.⁴ Replacing lead pipes with copper or plastic is a repair, because the plumbing does the same job. Swapping single glazing for double glazing is normally a repair. Replacing wooden beams with steel girders can be a repair too, provided the new girders are not designed to carry heavier loads for a different use of the building.

The line moves to capital when the work goes beyond restoring the original function. Converting a barn into a holiday let, building a car park next to the property, or refurbishing a run-down property before you first let it are all capital. Where a job mixes repair and improvement, you can apportion the cost on a reasonable basis and deduct only the repair element. If any improvement is small enough to be incidental to the repair, the whole cost stays deductible.⁴

The capital costs you cannot claim now are not lost forever. They reduce your Capital Gains Tax bill when you eventually sell, so keep the invoices.

Replacement of Domestic Items Relief

When you replace furniture, an appliance, or another household item provided for the tenant’s use, you can deduct the cost under Replacement of Domestic Items Relief. It covers sofas, beds, tables, fridges, washing machines, curtains, carpets, and similar items.⁵

Two rules to watch. The relief covers replacements only, so the initial cost of furnishing a property when you first let it is capital and does not qualify. And if the replacement is substantially better than the item it replaced, you can only claim what a like-for-like equivalent would have cost. Upgrade a basic fridge to a high-end model, and your deduction is capped at the price of a comparable basic fridge.⁵

If you sell the old item, subtract whatever you received from the claim. A landlord who buys a new £600 sofa and sells the old one for £100 claims £500.

The £1,000 Property Allowance

If your total gross rental income for the tax year is £1,000 or less, you do not have to tell HMRC about it.⁶ Above £1,000, you can choose to use the allowance as a flat £1,000 deduction instead of claiming your actual expenses. You cannot claim both in the same year.

For most buy-to-let landlords with a mortgage, agent fees, and insurance, real expenses are well above £1,000, so the allowance is not useful. It mainly helps people with a single furnished room, occasional lettings, or a mortgage-free property with minimal costs. If you jointly own a property, each owner gets their own £1,000 allowance against their share of the income.⁶

The 20% Tax Credit for Mortgage Interest

Before April 2017, individual landlords could deduct mortgage interest from rental income as a straight expense. Section 24 of the Finance (No. 2) Act 2015 changed that.⁷ From the 2020–21 tax year onwards, individual landlords can no longer deduct any finance costs from rental income. Instead, they receive a basic rate tax reduction worth 20% of those costs.

In practice your full rental income counts as taxable profit before any mortgage interest, which can push you into a higher band. You then get a credit at the end that reduces your bill by 20% of the mortgage interest and qualifying finance charges you paid. Basic rate taxpayers end up in roughly the same place as before. Higher and additional rate taxpayers are worse off, because their relief is capped at 20% while their marginal rate is 40% or 45%.

The credit is 20% of the lowest of three figures:⁸

Your finance costs for the year, plus any amount carried forward from a previous year.
Your property business profits, after any brought-forward losses.
Your adjusted total income (non-savings, non-dividend income above the personal allowance).

The credit cannot produce a refund. If the lowest of those three is below your actual finance costs, the unused portion carries forward to future years. It is easy to overlook, and landlords who track it can recover relief they thought was lost.

What Buy-to-Let Allowances Do Not Cover

A few costs sit outside the rental income calculation, and it is worth knowing so you do not go looking for them there. The Stamp Duty Land Tax surcharge you pay when buying a buy-to-let, currently an extra 5% on top of standard SDLT in England and Northern Ireland, is not an income tax deduction, though it does reduce your CGT bill when you sell.⁹ Capital Gains Tax on sale is a separate calculation with its own rates, its own £3,000 annual exempt amount, and a 60-day reporting and payment deadline that runs from completion.¹⁰ And the Section 24 mortgage interest restriction does not apply to limited companies, which is why some landlords hold property through a company, though the transfer costs and dividend taxation make that a decision to take with professional advice rather than as a general allowance.

How to Claim: Reporting and Records

Rental income is reported through self-assessment on the SA105 supplementary page alongside your main SA100 return.¹¹ Paper returns are due by 31 October after the tax year ends; online returns by 31 January, which is also the deadline for paying any tax owed.

HMRC expects you to keep records of all income and expenses for at least five years after the 31 January submission deadline for the relevant tax year.¹² That means mortgage statements showing the interest and principal split, invoices for every repair and professional service, insurance premium confirmations, and agent fee statements. A simple spreadsheet updated monthly is more useful at year-end than a shoebox of receipts.

Making Tax Digital From April 2026

From 6 April 2026, landlords and sole traders with total self-employment and property income above £50,000 must comply with Making Tax Digital for Income Tax.¹³ The annual return is replaced by quarterly digital updates through compatible software, followed by a final declaration after the tax year ends. Landlords with income between £30,000 and £50,000 are expected to follow from April 2027. Those below the threshold can carry on with self-assessment as it stands. Moving to MTD-compatible bookkeeping software before the deadline also tends to produce more accurate records for claiming everything you are entitled to.

1
HM Revenue & Customs. Business Income Manual – BIM37007 – Wholly and Exclusively: Overview
2
GOV.UK. Work Out Your Rental Income When You Let Property
3
GOV.UK. Travel – Mileage and Fuel Rates and Allowances
4
HM Revenue & Customs. Property Income Manual – PIM2030 – Deductions: Repairs: Is It Capital?
5
HM Revenue & Customs. Property Income Manual – Furnished Lettings: Replacement of Domestic Items Relief: 2016-17 Onwards
6
GOV.UK. Tax-Free Allowances on Property and Trading Income
7
Legislation.gov.uk. Finance (No. 2) Act 2015 – Section 24
8
GOV.UK. Tax Relief for Residential Landlords: How It’s Worked Out
9
GOV.UK. Stamp Duty Land Tax: Residential Property Rates
10
GOV.UK. Report and Pay Your Capital Gains Tax
11
HM Revenue & Customs. Self Assessment: UK Property (SA105)
12
HM Revenue and Customs. RK BK1 A General Guide to Keeping Records for Your Tax Return
13
GOV.UK. Making Tax Digital for Income Tax for Sole Traders and Landlords