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Tax relief for landlords explained

Restricting finance cost relief for individual landlords

From the 6th April 2020, property landlords will no-longer be able to deduct finance costs (including mortgage interest) from rental income in order to reduce your tax bill.

Instead, tax relief on all residential property finance costs will be restricted to the basic rate of income tax.

Most landlords will fall into one of the following categories:

  • You don’t earn enough from your taxable income to pay any tax.
  • You pay tax on your taxable income at a rate of 20% (basic rate).
  • You pay tax on your taxable income at a rate of 40% or above (higher rate or additional rate).

Consequently, if you are a higher rate tax payer you will no longer get tax relief on your total finance costs incurred as the credit only allows you to claim back at basic rate. Find out more about current income tax rates and bands.

What can landlords claim tax relief on?

Allowable expenses

Generally, landlords can claim the expenses of running and maintaining their rental property.

If the rent you charge your tenants includes services such as electricity or council tax, you will still need to declare the total rent within your rental income. But you can claim the costs you pay as an expense in your annual tax return.

Allowable expenses include, but are not limited to:

  • Water rates, gas and electricity
  • Landlord insurance
  • Letting agent fees
  • Cost of services (such as cleaners or gardeners) if they are part of your rental agreement 
  • Legal and accounting fees
  • Rent, ground rent and service charges
  • Property repairs

Replacement Domestic Items Relief

If you rent your property as ‘fully furnished’, the Government now allow you to claim tax relief on the replacement of ‘domestic items’.

Examples of domestic items that qualify for this scheme include:

  • Replacement carpets and curtains
  • Replacement fridges, freezers and washing machines
  • Replacement beds and sofas
  • Replacement crockery or cutlery

It is important to remember that this scheme only applies to replacement items. You cannot claim tax relief on the cost of furnishing a property for the first time.

We hope that you have found this article useful. For further advice regarding tax relief for landlords please contact our expert team of certified accountants.

Find out more about our specialist accounting services for property and landlords.