Deductible rental expenditure

Are You Maximizing Your Rental Returns? Understanding Deductible Expenses and Section 24

Running a rental property is more than just collecting rent; it’s a business that requires careful financial management. At Ted Hoskins, we’ve navigated the London property market for over 45 years. We’ve seen many tax changes come and go, but none have been as significant in recent years as the shift in how mortgage interest is treated.

To help you protect your margins and stay compliant, we’ve put together this comprehensive guide on allowable expenses and the impact of “Section 24.”

1. What Are “Allowable Expenses”?


In the simplest terms, an allowable expense is a cost that is incurred “wholly and exclusively” for the purpose of renting out your property. You deduct these from your gross rental income to determine your taxable profit.

Common Deductions Include:

  • Property Repairs and Maintenance: This covers “like-for-like” repairs. Examples include fixing a burst pipe, repairing a broken window, or repainting walls between tenancies.
    Strategic Note: Adding a conservatory or a loft conversion is considered a “Capital Improvement” rather than a repair. While these can’t be deducted from your income tax, they can often be used to reduce your Capital Gains Tax (CGT) when you eventually sell the property.
  • Professional Services: Managing a property requires a village. Fees for letting agents (like the team here at Ted Hoskins), accountants, and legal fees for renewing leases or chasing arrears are all deductible.
  • Insurance: Landlord-specific policies (including buildings, contents, and public liability) are essential and fully allowable.
  • Direct Costs: This includes ground rent, service charges for flats, and any utility bills or council tax that you pay as the landlord.

2. The “Section 24” Factor: A Game Changer


The most significant change for modern landlords is Section 24 of the Finance (No. 2) Act 2015. Previously, landlords could deduct their full mortgage interest and finance costs from their rental income before paying tax.

Now, the rules are different:

  • No Direct Deduction: You can no longer deduct mortgage interest or loan fees from your rental income to lower your tax bracket.
  • The 20% Tax Credit: Instead, you receive a 20% tax credit on your mortgage interest.

Why this matters: If you are a higher-rate (40%) or additional-rate (45%) taxpayer, you are effectively paying more tax than before because you are taxed on the gross profit before interest is considered. This has pushed some landlords into higher tax brackets even if their actual “take-home” profit hasn’t changed.

Many of our clients have explored moving their portfolios into Limited Companies (Special Purpose Vehicles SPV) to mitigate the effects of Section 24. Always consult with a qualified tax advisor to see if this structure is right for your specific portfolio.

3. Replacement of Domestic Items Relief


If you provide a furnished or part-furnished property, you can no longer claim the old “10% Wear and Tear” allowance. Instead, you can claim for the actual cost of replacing domestic items, such as:

  • Furniture (sofas, beds, wardrobes)
  • Furnishings (curtains, carpets)
  • Household appliances (fridges, washing machines)
    The relief applies to the cost of the replacement, plus any costs associated with disposing of the old item, minus any insurance payouts or sale proceeds from the old item.

The Importance of Record-Keeping
The difference between a profitable year and a stressful one often comes down to organization. At Ted Hoskins, we provide our managed clients with clear, itemized monthly statements, making it easy for you or your accountant to identify every deductible penny.
Are you concerned about how your rental yield is stacking up against rising costs? We offer expert property management and market appraisals across Central London and Battersea. Let’s ensure your investment is working as hard as possible for you.

How Ted Hoskins Ltd Can Help?

For expert advice on allowable expenditure on your investment please contact Ted Hoskins Ltd today via info@thoskins.co.uk or 0208 241 4921

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