Allowable Landlord Expenses vs Capital Costs: 2026/27

5 min read

Table of Contents

Quick test: is a landlord cost allowable?
Common allowable revenue expenses
Repairs versus capital improvements
Residential mortgage interest is not a normal expense deduction
Replacement domestic items
Legal, professional and administrative costs
Cash basis timing in 2026/27
Records that support an expense claim
Example: one refurbishment, three tax treatments
2026/27 landlord expenses checklist
Official guidance

Allowable landlord expenses are costs incurred wholly and exclusively for running a property rental business. For 2026/27, the practical challenge is not simply listing costs: it is separating day-to-day revenue expenses from capital improvements, private spending and finance costs that follow different tax rules.

This guide explains the decision process for individual UK landlords. Companies, furnished accommodation, mixed-use property and unusual transactions can require different treatment.

Quick test: is a landlord cost allowable?

Ask the following questions for every payment:

Was it incurred for the property business? A purely private cost is not deductible.
Is it revenue rather than capital? Restoring an existing asset is normally a repair; creating, replacing or substantially improving an asset may be capital.
Has any private element been removed? Where a cost has a clear business and private split, only the business proportion may qualify.
Does a specific restriction apply? Residential finance costs, replacement domestic items and legal fees each have their own rules.
Can you evidence it? Keep the invoice, receipt, bank record and a note explaining the business purpose.

Common allowable revenue expenses

Subject to the facts and the wholly-and-exclusively test, deductions commonly include:

letting-agent and property-management fees;
landlord insurance and buildings or contents cover relating to the let;
routine repairs and maintenance, such as repainting, fixing broken windows, treating damp or replacing damaged roof tiles;
water rates, council tax, gas and electricity where the landlord is responsible;
cleaning, gardening and other services supplied as part of the letting;
accountancy, bookkeeping and qualifying legal or professional fees;
advertising for tenants, tenancy-reference costs and relevant subscriptions;
business phone, stationery and travel costs to the extent they relate to managing the rental business.

A payment is not automatically deductible just because it appears in this list. The contract, purpose and nature of the work matter.

Repairs versus capital improvements

This distinction causes many errors. A repair normally restores an asset to its previous condition and is generally deducted when calculating rental profit. An improvement adds something new, changes the character of the asset or significantly enhances it; it is normally capital expenditure and is not deducted as a routine property-business expense.

Work	Likely treatment	Why
Replace several broken roof tiles	Revenue repair	Restores part of the existing roof
Replace an old kitchen with a modern equivalent	Depends on the facts	Modern materials alone do not necessarily create an improvement
Add an extension or extra storey	Capital	Creates or enlarges the asset
Renovate a property bought in a derelict state so it can first be let	Often capital	The purchase and initial works may form one capital project
Decorate between tenancies	Usually revenue	Maintains the existing property

A single contractor invoice can contain both repair and improvement work. Ask for an itemised invoice and apportion the cost on a reasonable, supportable basis. HMRC’s repairs guidance confirms that significant improvement beyond the asset’s original condition is normally capital.

Residential mortgage interest is not a normal expense deduction

For an individual with residential property, finance costs are generally not deducted in full from rental income. Relief is normally given through a basic-rate tax reduction, subject to limits. Do not mix mortgage interest with arrangement fees, capital repayments or borrowing used for private purposes. Companies and some non-residential property businesses follow different rules. See our 2026/27 landlord mortgage-interest guide.

Replacement domestic items

Relief may be available when a landlord replaces a domestic item provided for a tenant—such as furniture, appliances, carpets, curtains, crockery or cutlery. It generally applies to a replacement, not the initial purchase. The deduction is normally limited to the cost of an equivalent replacement, plus qualifying incidental disposal or installation costs, less amounts received for the old item. Any extra cost of a superior upgrade is normally excluded unless the old specification is no longer reasonably available.

Legal, professional and administrative costs

Revenue professional fees incurred for the rental business can qualify, including routine accountancy and qualifying lease-renewal work. Fees connected with buying a property, a long first lease or another capital transaction are normally capital. Penalties and fines are not converted into allowable expenses by paying them through the property account.

Cash basis timing in 2026/27

The cash basis is the default for many unincorporated property businesses with annual receipts of £150,000 or less. Income and expenses are normally recognised when money is received or paid. Landlords outside those conditions, companies, and taxpayers who elect for traditional accounting may use different timing rules. Read our landlord cash-basis guide before deciding which tax year contains a deduction.

Records that support an expense claim

Keep supplier invoices, receipts, tenancy agreements, completion statements, loan statements and bank records. For substantial building work, retain photographs, surveys, specifications and a written explanation of what existed before and after the work. This evidence helps distinguish repair from improvement and supports any later capital-gains calculation.

Use a separate rental bank account where practical and reconcile it regularly. Our landlord tax-records checklist explains retention periods and a sensible evidence pack.

Example: one refurbishment, three tax treatments

A landlord spends £1,200 repainting a flat, £900 replacing a broken freestanding washing machine with an equivalent model, and £18,000 adding a new room. The decoration may be a revenue repair; the washing machine may qualify under replacement-of-domestic-items relief; and the new room is normally capital. Recording the whole £20,100 as “repairs” would overstate the income-tax deduction and weaken the capital-gains records.