Income from property: frequently asked questions

1) Repairs and renewals

Q: I have replaced the fitted kitchen in my rental property, is this an allowable
expense or is it capital?

A: Provided the kitchen is replaced with a similar standard kitchen and does
the same job as before, then this is a repair and the expenditure is allowable. If
the kitchen is substantially improved, for example if standard units are
replaced by expensive high-quality materials or the layout is significantly
changed, then the expenditure would be capital.

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-
working-out-your-rental-income#allow-expense

and

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2020

2) Repairs and renewals

Q: I have replaced the old boiler in my property for a condensing boiler. Is this a
repair or an improvement?

A: As long as the new boiler is the closest equivalent in capability, then the
replacement boiler will be a revenue repair. Something that was seen as an
improvement ten years ago may now be the industry standard for that type of
work.
https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-
working-out-your-rental-income#allow-expense

and

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46920

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and

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46925

3) Capital expenses
Q: I have recently bought a rental property and I have carried out considerable repair
work before letting it. Is this an allowable expense or is it an improvement?

A: Money you spend on the property after you’ve acquired it may be capital
rather than an allowable expense against rental income. If the property was not
in a fit state to be rented out without undertaking the work, or the cost of the
property was substantially reduced to reflect its poor condition, then the costs
of putting it right are likely to be capital expenditure.

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2030

4) Renewals allowance
Q: Now that the wear and tear allowance has been replaced, does that mean that I
can now claim the cost of white goods, furniture, carpets etc?

A: You can claim a deduction for the cost of replacing domestic items such as
moveable furniture, household appliances and other furnishings like carpets
and floor coverings. The initial cost of purchasing these items is not a
deductible expense, it is only when you replace them. The deduction for
replacement items is capped at the equivalent cost of the same type of item if
you upgrade it, for example to replace a standard sofa with a sofa bed.
Domestic items do not include fixtures such as kitchen units, boilers and
baths.

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-
working-out-your-rental-income#allowances

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5) Travel
Q: My rental property is quite a long way from where I live. Can I still claim travelling
expenses for my visits to the property?

A: Where the sole purpose of the journey is for your rental business, then this
will generally be allowable. However, if the journey has a dual purpose, for
example you also go shopping or visit relatives, then none of the travel
expenses will be deductible.

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2220

6) Finance costs
Q: What constitutes finance costs in respect of the residential finance costs
restrictions?

A: Residential finance costs that will be restricted include interest on

mortgages, loans (including loans to buy furnishings) & overdrafts. Other
costs affected are; alternative finance returns, fees and any other incidental
costs for getting or repaying mortgages and loans.

In 2020/21, all residential finance cost will be used to work out a tax reduction
at the basic rate of tax currently 20%.

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-
working-out-your-rental-income#tax-relief-change

and

https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-
how-its-worked-out-including-case-studies

7) Jointly owned property

Q: I own a property with my brother, how do I declare the rental income?

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A: Usually, rental profits from jointly owned properties are split between the
owners in the same proportion that the properties are owned. Joint owners
can agree a different division of profits and losses and so occasionally the
share of the profits or losses will be different from the share in the property.
The share for tax purposes must be the same as the share actually agreed.
There are specific rules about property held jointly by married couples and
civil partners.

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030

8) Cash Basis
Q: Has the way I record my income and expenses changed from 2017-2018
onwards?

A: As of 2017-18, the cash basis is the default method of reporting profits or

losses of a property business for most individuals with cash receipts for the
tax year of £150,000 or less. You only need to show money when it comes in or
goes out. If you believe it is more appropriate to continue using traditional
accounting, e.g. when the income is earned and when the expenses are
incurred, you must make an election on your tax return.

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1090

9) Property Allowance
Q: I’ve heard there is a £1,000 property allowance that applies to property income,
can I claim it?

A: From 6 April 2017, you can get a tax-free allowance for property income.
The property allowance is a tax exemption of up to £1,000 a year for
individuals with income from land or property. If your annual gross property
income is more than £1,000 you can use this property allowance instead of
deducting any actual expenses incurred. If you own a property jointly with
others, you’re each eligible for the £1,000 allowance against your share of the

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gross rental income. If your annual gross property income is £1,000 or less,
you won’t need to tell HMRC.

https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-
income

and

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4400

10) Losses
Q: I’ve made a loss from renting out a property, what can I do with it?

A: The main method of relieving a loss is to carry it forward and deduct it from
future rental business profits. When carrying forward a loss you must use it in
full against the first available rental business profits. You can’t opt to take a
smaller amount. If more than one property is being let out the income and
expenditure from all the properties are combined to determine an overall profit
or loss for the year.

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-
working-out-your-rental-income#losses

11) Rent a Room

Q: What is the Rent-A-Room scheme?

A: The Rent-A-Room Scheme lets you earn up to a threshold of £7,500 per year
tax-free from letting out furnished accommodation in your home. This is
halved if you share the income with your partner or someone else.

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

and

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https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-
self-assessment-helpsheet

12) Rent a Room

Q: How do I show my Rent-A-Room income on my tax return?

A: There is a box on the online return asking you if you want to claim the Rent-
A-Room relief. If you say ‘Yes’, there is a further box that asks whether your
income is above or below the annual exemption of £7,500 (£3,750 if the
property is let jointly). The online return will take you through the rest of the
section based on your answers to these questions

13) Council Tax

Q: I am in-between tenants and I am paying council tax on my rental property. Can I
claim this as an expense?

A: If the landlord pays council tax or other costs such as utilities because they
are in-between tenants, then these will be allowable to the extent they are
solely for the purpose of the rental business. For further information, please
see:

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2140

14) Pre-Letting Expenses

Q: I have paid out expenses on my rental property, but I do not have a tenant yet,
can I claim these?

A: Usually the rental business does not begin until the first property is let. Any
expenses incurred before the first let must be solely for the rental business
and must not be capital expenditure. Any qualifying pre-letting expenses are
treated as incurred on the day the rental business commences, which to
confirm, is usually the day the property is first let. After the first property has

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been let, any later expenditure leading up to the letting of the second and later
properties is part of the rental business and can be deducted - provided it is
incurred wholly and exclusively for the purpose of the business and isn’t
capital expenditure. For further information, see:

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2505

15) Use of Home

Q: Can I claim any costs for running my letting business from home?

A: Where a landlord genuinely runs the rental business from home, they may
claim the extra business costs that they incur - such as the cost of extra
lighting and heating. Where a specific part of their home is used exclusively
for running the rental business for a significant amount of time, then a
proportion of all fixed expenses referable to that room may be deducted.
Further information can be found at:

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2100

16) Mandatory Licenses

Q: I’ve had to obtain a mandatory landlord’s license from my local authority is the
cost deductible from my rental income?

A: The fee charged by a local authority for a mandatory landlord’s license is

usually an allowable deduction.

17) Legal Fees

Q: Which legal fees can I claim as a deduction against my rental income?

A: The legal costs incurred in acquiring or disposing of a property are non-

allowable, but they may be allowable in computing any capital gain on the
disposal of the property. Expenses incurred in connection with the first letting
of a property for more than one year are capital expenditure and therefore not
allowable.

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Legal and professional fees for renewing a lease (if the lease is for less than 50
years) are deductible. But any proportion of the legal costs that relate to the
payment of a premium on the renewal of a lease are not deductible. Other
examples of allowable legal and professional costs are management fees paid
to an agent for rent collection, advertising and administration and professional
fees paid to evict an unsatisfactory tenant in order to re-let the property.

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2205

18) Property Allowance

Q: Is there a box on the tax return for me to claim the £1,000 property allowance?

A: From 6th April 2017, if your income from property, including any foreign
property, is £1,000 or less, it is exempt from tax and doesn’t need to be
reported on a tax return. If your property income exceeds £1,000 and you are
claiming the property income allowance you must enter your total rental
income in the relevant section of the return. There is an additional box for you
to subtract the property allowance from the appropriate rental receipts.
Remember, it cannot exceed £1,000 or create a loss. There is further
information on the SA105 notes.

https://assets.publishing.service.gov.uk/government/uploads/system/
uploads/attachment_data/file/973767/SA105_English_Notes-2021.pdf

19) Rent a Room Scheme and Property Allowance

Q: I have a lodger in my own house but also rent out another property, can I claim
both rent a room relief and the property allowance?

A: The first point to note is rent a room receipts do not qualify for the property
allowance. If your rent a room receipts are less than the £7,500 rent a room
exemption limit, they will be exempt from income tax. However, the property
allowance can apply to the receipts from your other property income, even if
you are claiming rent a room relief against the income from your lodger.
https://goo.gl/3Zwoj2

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20) Airbnb
Q: Do I pay tax on Airbnb income?

A: Yes, this is income from a rental business

21) Airbnb
Q: Will renting through Airbnb qualify for furnished holiday letting?

A: Properties need to meet the qualifying tests for furnished holiday lettings.
There is more information at

https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-
self-assessment-helpsheet

22) Furnished Holiday Lettings

Q: Are there special rules for Furnished Holiday Lettings?

A: Yes. If you let properties that qualify as FHLs:

 you may be able to claim certain Capital Gains Tax reliefs
 you’re entitled to capital allowances for items such as furniture,
equipment and fixtures

23) Furnished Holiday Lettings

Q: How do I know if my rental property qualifies as a FHL?

A: The property must be in the UK or the EEA, there must be sufficient

furniture provided for normal occupation and the accommodation must pass 3
occupancy conditions. For more details on these conditions, please refer to
the following guidance:

https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-
self-assessment-helpsheet

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24) Furnished Holiday Lettings
Q: Where can I get further information on FHL’s

A: Please refer to our help sheet HS253

https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-
self-assessment-helpsheet

25) Record Keeping:

Q: I have just started renting out a property, what records do I need to keep?

A: You should keep details of:

 the dates when you let out your property
 all rent you get
 any income from services you give to tenants (for example if you charge for
maintenance or repairs)
 rent books, receipts, invoices and bank statements
 allowable expenses you pay to run your property (for example services you
pay for such as cleaning or gardening)

https://www.gov.uk/keeping-your-pay-tax-records/rental-income

Miscellaneous Questions:
Q: Are there any golden rules when claiming expenses?

A: Any expenses you claim must be wholly & exclusively for the purpose of
renting out the property. The expenses must also be revenue, rather than
capital expenses.

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2005

Q: What are the main types of expenses I can claim?

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A: Common types of expenses you can deduct if you pay for them yourself
are:
 general maintenance & repairs to the property, but not improvements
(such as replacing a laminate kitchen worktop with a granite worktop)
 water rates, council tax, gas & electricity
 insurance, such as landlords’ policies for buildings, contents & public
liability
 costs of services, including wages of gardeners & cleaners
 letting agent fees & management fees
 legal fees for lets of a year or less, or for renewing a lease for less than
50 years
 accountant’s fees
 rents (if you’re sub-letting), ground rents & service charges
 direct costs such as phone calls, stationery & advertising for new
tenants
 vehicle running costs (only the proportion used for your rental
business)
 you can also claim expenses for the interest on a mortgage to buy the
property. If you have a loan on a residential let property. The amount of
income tax relief some landlords can get on residential property finance
costs started to be restricted to the basic rate of tax from 06/04/17.

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2068

and

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-
working-out-your-rental-income#allow-expense

Q: Are there any expenses I can’t claim as a deduction against my rental income?

A: Expenses you can’t claim a deduction for include:

 the full amount of your mortgage payment - only the interest element of
your mortgage payment can be offset against your income

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  private telephone calls - you can only claim for the cost of calls relating
to your property rental business
 clothing - for example if you bought a suit to wear to a meeting relating
to your property rental business, you can’t claim for the cost as wearing
the suit is partly for your rental business and partly to keep you warm -
no identifiable part is for your property rental business
 personal expenses - you can’t claim for any expense that was not
incurred solely for your property rental business

Q: What happens if only part of an expense is used for the rental business?

A: Where an expense has been incurred for a dual purpose, generally the
expenditure should be disallowed. However, if a definite part or proportion of
an expense is incurred wholly and exclusively for the property business, you
can deduct that part or proportion.

See an example of claiming part expenses.

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