If you are a landlord reporting rental income under Making Tax Digital, understanding which expenses you can claim is essential. Every legitimate deduction reduces your taxable profit and your tax bill.

MTD does not change which property expenses are allowable — the same HMRC rules that applied under Self Assessment still apply. What changes is that you now record them digitally and report them quarterly. For a broader overview covering all self-employed individuals, see our parent guide: What Expenses Can I Claim Under MTD?

Mortgage Interest: The Tax Credit, Not an Expense

This is the single biggest area of confusion for landlords. Since April 2020, mortgage interest on residential rental properties is no longer deductible as an expense. Instead, you receive a basic rate (20%) tax credit on the interest paid.

What this means in practice:

  • You still record your mortgage interest payments in your MTD software
  • The interest does not reduce your taxable rental profit
  • Instead, HMRC calculates a 20% tax credit on the interest, which reduces your overall tax liability
  • Higher rate (40%) and additional rate (45%) taxpayers feel this most, because they used to deduct mortgage interest at their marginal rate

Example: You pay £8,000 in mortgage interest during the year. Under the old rules, a 40% taxpayer would have saved £3,200 in tax. Under the current rules, the tax credit is £1,600 (20% of £8,000) — a difference of £1,600.

Your MTD software should handle the tax credit calculation for you, but it is important to understand the distinction so you record interest payments correctly.

Replacement Domestic Items Relief

The old wear and tear allowance (which gave furnished landlords a flat 10% deduction) was abolished in April 2016. In its place, landlords can claim replacement domestic items relief.

This relief covers the cost of replacing:

  • Furniture (beds, sofas, tables, chairs, wardrobes)
  • Furnishings (curtains, blinds, carpets, linen)
  • Household appliances (washing machines, fridges, ovens, dishwashers)
  • Kitchenware (crockery, cutlery, cooking utensils)

The key rules:

  • You can only claim when replacing an existing item, not when furnishing a property for the first time
  • The claim is for a like-for-like replacement. If you replace a basic oven with a range cooker, you can only claim the cost of an equivalent basic oven
  • You can deduct the cost of disposing of the old item
  • Any proceeds from selling the old item must be subtracted from your claim

Letting Agent Fees and Management Costs

If you use a letting agent or property manager, all their fees are fully deductible:

  • Tenant-finding fees — advertising, referencing, and setting up the tenancy
  • Ongoing management fees — typically 8-15% of monthly rent
  • Rent collection charges
  • Inventory and check-out costs

If you manage the property yourself, you cannot claim for your own time — but you can claim for costs you incur while managing it (advertising, travel, or supplies).

Insurance

Several types of insurance are allowable property expenses:

  • Buildings insurance — covers the structure of the property
  • Landlord liability insurance — covers injury claims by tenants or visitors
  • Rent guarantee insurance — covers lost rent if a tenant defaults
  • Contents insurance — if you provide furnishings
  • Legal expenses insurance — covers the cost of legal disputes with tenants

If a single policy covers multiple properties, the full premium is deductible. If a policy covers both personal and rental property, you can only claim the proportion relating to the rental property.

Repairs vs Improvements

This distinction is critical and catches out many landlords. Getting it wrong can trigger an HMRC enquiry.

Repairs are allowable. A repair restores something to its previous working condition:

  • Fixing or replacing a broken boiler
  • Repainting walls and ceilings between tenancies
  • Replacing a broken window
  • Repairing a leaking roof
  • Replastering damaged walls
  • Fixing or replacing faulty plumbing or electrics

Improvements are not allowable. An improvement enhances the property beyond its original state:

  • Adding an extension or conservatory
  • Installing central heating where there was none before
  • Converting a loft into a bedroom
  • Adding a new bathroom where one did not exist

The grey area: Replacing a kitchen with a broadly equivalent kitchen is a repair. Replacing a basic kitchen with a significantly higher-specification kitchen could be partly classified as an improvement. If in doubt, claim only the cost of a like-for-like replacement.

Improvements are capital expenditure — they may reduce your Capital Gains Tax when you sell the property, but they cannot be deducted from rental income.

Ground Rent and Service Charges

If your rental property is leasehold, you can claim:

  • Ground rent paid to the freeholder
  • Service charges for communal maintenance, cleaning, and upkeep
  • Sinking fund contributions for major works (though the timing of the deduction can be complex — claim the contribution in the year you pay it)

These are straightforward to record under MTD and are often overlooked by landlords who focus on the bigger costs.

Legal and professional fees are deductible when they relate to your property business:

  • Lease preparation and renewal costs
  • Tenant dispute resolution and eviction costs
  • Accountancy fees for preparing your property accounts
  • Professional advice on property tax matters
  • Debt recovery costs for unpaid rent

Fees for buying or selling a property are not deductible as revenue expenses — they are part of the capital cost of the property.

Travel to Properties

If you travel to your rental property for inspections, maintenance, tenant meetings, or to oversee repairs, the travel costs are allowable. You can claim using either method:

  • Simplified mileage rate: 45p per mile for the first 10,000 miles per tax year, 25p per mile thereafter
  • Actual costs: fuel, parking, tolls, and a proportion of vehicle running costs based on business mileage

Keep a log of each journey with the date, destination, purpose, and miles travelled. This is particularly important for landlords with properties in different locations.

For a detailed comparison of simplified versus actual cost methods, see our guide on motor, home office and simplified expenses under MTD.

Utilities and Council Tax

You can only claim utilities and council tax as expenses if you pay them rather than the tenant:

  • Void periods — when the property is empty between tenancies, any council tax, gas, electricity, or water bills you pay are allowable
  • Bills included in rent — if you advertise the property as "bills included," the utility costs you pay are deductible
  • Communal utilities — shared heating or hot water systems in multi-unit properties

If the tenant pays their own bills directly to suppliers, you have nothing to claim.

Advertising for Tenants

If you find tenants yourself rather than using a letting agent, advertising costs are deductible:

  • Online listing fees (Rightmove, Zoopla, OpenRent)
  • Newspaper or local publication advertising
  • Signage (to-let boards)
  • Photography costs for property listings

What You Cannot Claim

Some costs are explicitly not allowable as property expenses:

  • Mortgage capital repayments — only the interest element qualifies (as a tax credit)
  • Personal expenses — anything not related to the rental business
  • The cost of buying the property — stamp duty, conveyancing fees, and survey costs are capital expenditure
  • Improvements and additions — enhancing the property beyond its original condition
  • Your own time — you cannot charge the business for hours spent managing properties
  • Fines and penalties — including late filing penalties or planning enforcement fines
  • Initial furnishing costs — only replacements qualify under replacement domestic items relief

Recording Property Expenses Under MTD

Record each property expense digitally with the date, amount, and HMRC category. The best practice is to record expenses as they arise — weekly is ideal — rather than waiting until the quarterly deadline.

ClearMTD is designed for landlords and sole traders who need straightforward MTD compliance without full accounting complexity. Record your property income and expenses, submit quarterly updates, and file your Final Declaration — all in one place.

Sign up for ClearMTD and get your rental property expenses organised for MTD.

Frequently Asked Questions

Can landlords still claim mortgage interest as an expense?

Not as a direct expense deduction. Since April 2020, residential landlords receive a basic rate (20%) tax credit for mortgage interest instead. You still need to record mortgage interest payments in your MTD software, but the relief is applied as a tax reduction, not an expense that reduces your taxable rental profit. Higher and additional rate taxpayers are most affected by this change.

What is the difference between a repair and an improvement?

A repair restores something to its previous condition — fixing a boiler, replacing a broken window, repainting walls. An improvement enhances the property beyond its original state — adding an extension, installing central heating where there was none, or converting a loft. Repairs are allowable revenue expenses; improvements are capital expenditure and cannot be deducted from rental income.

Can I claim for furniture in my rental property?

You can claim replacement domestic items relief when you replace furniture, appliances, or other domestic items in a rental property. The relief covers the cost of the replacement item on a like-for-like basis. You cannot claim for furnishing a property for the first time — only replacements qualify.

Are letting agent fees deductible under MTD?

Yes. Letting agent fees are fully deductible, including tenant-finding fees, rent collection commissions, ongoing property management charges, and inventory costs. Record them under professional fees or property management in your MTD software.

Can I claim travel expenses to visit my rental property?

Yes. Travel costs for property inspections, meeting tenants, overseeing repairs, or collecting rent are allowable. You can claim actual travel costs or use the simplified mileage rate (45p per mile for the first 10,000 miles, 25p thereafter). Keep a log of each journey with the date, destination, and purpose.