UK Rental Income Tax Guide 2025 — Section 24 & Allowable Expenses

The two ways to reduce taxable rental profit

You can either itemise actual allowable expenses, or use the £1,000 property allowance as a flat alternative — not both in the same year for the same property. The property allowance simply reduces rental income by £1,000 (or brings it to zero, whichever is less — it cannot create a loss); a landlord with genuine expenses well above £1,000 is almost always better off itemising instead.

What counts as an allowable expense

Deductible costs include repairs (not improvements), insurance, letting agent fees, professional fees, travel (45p a mile for the first 10,000 business miles by car), and Replacement of Domestic Items Relief — the cost of replacing a qualifying furnishing or appliance in a furnished or part-furnished let.

Repairs vs improvements is the single most contested line. Replacing an old boiler with a similar-specification new one is a repair — fully deductible against rental income in the year it's paid. Upgrading to a significantly more powerful or different system instead makes some or all of the cost a capital improvement — not deductible from rental income at all, though it can reduce a future Capital Gains Tax bill when the property is eventually sold. The same logic applies to Replacement of Domestic Items Relief: a genuine like-for-like replacement is deductible in full, but if the replacement is an upgrade, only the cost of a comparable modern equivalent is deductible — the extra cost of the upgrade itself is not, and technological advancement alone (a newer model that happens to have more features) does not automatically count as an upgrade for this purpose.

Mortgage interest is not on this list — Section 24 again

Unlike genuine running costs, mortgage interest and other finance costs are not deducted from rental income at all for an individual landlord. Instead, Section 24 gives a flat 20% tax credit against those costs, applied after the tax calculation — costing basic-rate landlords very little in practice, but a real increase in tax for higher- and additional-rate landlords, since the credit is capped at 20% regardless of their actual marginal rate.

Worked example

A landlord has £14,000 of rental income for the year, with £2,500 of repairs, insurance and agent fees, and £4,000 of mortgage interest.

• Itemising expenses: taxable rental profit = £14,000 − £2,500 = £11,500 (mortgage interest is not deducted here — it only generates the separate 20% credit described above)
• Using the £1,000 property allowance instead: taxable rental profit = £14,000 − £1,000 = £13,000 — worse for this landlord, since their actual expenses (£2,500) exceed the flat £1,000 allowance by £1,500

This landlord is better off itemising, because their genuine costs exceed the flat allowance — the property allowance mainly helps landlords with very low actual costs relative to their rental income, not landlords with substantial repair or agent-fee bills.

FAQ

Q: Can I claim the property allowance on one rental property and itemise expenses on another? A: The property allowance is generally an all-or-nothing choice across your whole property rental business for the year, not something you can mix and match property-by-property — check current guidance for your specific structure if you have multiple lettings.

Q: Does replacing a fitted kitchen count as a repair or an improvement? A: It depends on whether the replacement is genuinely like-for-like or a substantial upgrade — a straightforward like-for-like refit tends to be a repair, while a significant upgrade in specification shifts some or all of the cost towards capital improvement, non-deductible against rental income.

Q: Is mortgage interest ever fully deductible for a residential landlord? A: Not for an individual — only a limited company holding the property gets full deductibility of mortgage interest against rental income, since Section 24 does not apply to companies.

Sources

Figures verified against HMRC guidance as of 30 July 2026:

• gov.uk / HMRC — Property Income Manual (£1,000 property allowance mechanics; repairs vs improvements distinction; allowable expense categories including the 45p/mile travel rate)
• gov.uk — Replacement of Domestic Items Relief (like-for-like vs upgrade treatment)
• Finance (No. 2) Act 2015, Section 24 (finance costs excluded from deductible expenses; 20% flat tax credit mechanism instead)