Allowable expenses for landlords

The test

An expense is allowable if it is incurred wholly and exclusively for the property business and it is revenue rather than capital. Both parts matter, and the second one is where landlords go wrong.

The everyday list

Repair or improvement? The distinction that costs money

A repair restores the property to its previous condition and is deductible now. An improvement makes it better than it was and is capital, which means no deduction against rental profit, though it may reduce Capital Gains Tax when you sell.

Replacing a broken boiler with a similar one     REPAIR      deduct now
Replacing a working boiler as part of a
   whole new heating system                      IMPROVEMENT capital

Repainting the hallway                           REPAIR      deduct now
Adding a downstairs toilet                       IMPROVEMENT capital

Replacing single glazing with double glazing     usually a REPAIR, because
   double glazing is the modern equivalent of what was there

That last one surprises people. Using modern materials because the old equivalent is no longer available does not, by itself, make a job an improvement.

Replacing furniture and appliances

For a residential let, you can generally claim the cost of replacing domestic items such as beds, sofas, carpets, curtains, fridges and washing machines. You cannot claim the cost of buying them for the first time when you initially furnish the property.

The relief is for a like-for-like replacement. If you replace a basic cooker with a top-of-the-range one, the claim is limited to what the equivalent basic replacement would have cost.

The bit HMRC does not spell out

Costs incurred before your first tenant moves in can often still be claimed. Pre-letting expenditure that would have been allowable had the property already been let is generally treated as incurred on the first day of letting, provided the property was genuinely being prepared for letting rather than lived in.

The catch is the repair-versus-improvement line again: getting a run-down property into a lettable state frequently involves work that is capital rather than revenue, and buying a property cheaply because it needs work points strongly towards capital treatment.

Void periods

Expenses during a void are still allowable, provided you are genuinely trying to let the property. Council tax, utilities, insurance and maintenance across an empty month remain deductible. What is not allowable is a period where you or a family member are using the property yourselves.

Common mistakes

• Treating improvements as repairs. The most expensive error, and the one HMRC looks for.
• Claiming initial furnishing. Only replacements qualify.
• Claiming for your own labour. Your time is not a deductible cost.
• Forgetting void-period costs. They remain allowable while you are trying to let.