As a landlord, ensuring your rental property is financially rewarding is not just about setting the right rent. From tax relief to allowable expenses, understanding the ins and outs of accounting for landlords can help maximise your rental income, reduce your tax bill and ensure you comply with the latest regulations.

With the current tax landscape offering several opportunities, we’ve outlined some essential tips for property owners to maximise their rental income.

Know what you can claim as allowable expenses

A key way to maximise your rental income is by understanding what expenses you can claim against your taxable income. HMRC allows landlords to deduct certain expenses, which will reduce the amount of rental income liable for tax. These expenses include the following.

• Property maintenance and repairs: Routine repairs and maintenance costs, such as fixing leaks, repainting or replacing a broken boiler, are deductible.
• Insurance premiums: The cost of insuring your property is tax-deductible, including landlord-specific policies like building and contents insurance.
• Accountant’s fees: The cost of hiring an accountant to manage your property’s finances can be claimed as an allowable expense.
• Letting agent fees: Any fees paid to letting agents for managing the property or finding tenants can also be deducted.
• Utility bills: If you cover any bills, such as gas, electricity or water, these costs can be claimed as expenses.

It’s important to keep accurate and detailed records of these expenses. HMRC requires landlords to retain records for at least five years after the 31 January submission deadline for the relevant tax year.

Take advantage of mortgage interest tax relief

While the government has phased out the old system of mortgage interest relief for landlords, there is still some relief available. You can claim a basic rate reduction of 20% of your mortgage interest payments. Although this isn’t as generous as the previous full relief, it can still make a significant difference to your overall tax bill.

For example, if your mortgage interest payments total £10,000, you can reduce your tax bill by £2,000. While the full relief previously available may be missed by some, planning ahead and taking advantage of this relief is a key way to minimise your tax liability.

Use the Rent-a-Room scheme (for live-in landlords)

If you rent out a furnished room in your home, you can benefit from the Rent-a-Room scheme, which allows you to earn up to £7,500 tax free. This is especially beneficial if you’re a live-in landlord or renting out part of your home. However, it’s important to remember that this only applies to furnished rooms and does not apply if the entire property is rented out.

This scheme is a straightforward way to earn extra income without facing any tax liability, helping you keep more of what you earn.

Consider capital gains tax when selling

Landlords may also be liable for capital gains tax (CGT) when they sell a rental property. If the property has increased in value, CGT is charged on the gain made. For the 2024/25 tax year, the CGT allowance has been reduced to £3,000 for individuals. If your gain exceeds this threshold, you will pay CGT at 18% for basic-rate taxpayers or 28% for higher-rate taxpayers on any profits.

Planning when and how to sell your rental property can help manage your exposure to CGT. If you own the property jointly with a spouse or civil partner, you can take advantage of both allowances, effectively doubling your tax-free amount.

Incorporate a limited company

For landlords with multiple properties, incorporating a limited company can be an efficient way to manage tax liabilities. When properties are held within a company, corporation tax is paid on profits at a rate of 25%, which is often lower than the income tax rate for higher earners.

Additionally, any profits retained within the company can be reinvested into additional properties or other ventures without being subject to personal tax until withdrawn as dividends. This approach may also make mortgage interest fully deductible, offering further tax relief.

However, there are downsides to incorporating, such as higher costs for accountancy and legal services, as well as potential stamp duty and capital gains tax liabilities if transferring properties from personal ownership to the company. It’s essential to seek professional advice to weigh up whether this is the right option for your circumstances.

Stay updated with tax changes

Landlords must stay informed about ongoing changes to tax laws and regulations. For example, the gradual reduction of capital gains tax allowances or shifts in income tax bands can impact your tax liabilities. Keeping on top of these changes allows you to plan ahead and make informed decisions.

At Cottons, we help landlords stay on top of their finances by providing expert tax advice, ensuring that you never miss an opportunity to maximise your income or minimise your liabilities. Whether it’s claiming allowable expenses or planning for future tax changes, we’ve got you covered.

Seek expert advice

Navigating the intricacies of rental property accounting can feel overwhelming. However, working with a trusted accountant can make all the difference. At Cottons we specialise in providing tailored advice to landlords, ensuring your rental property is both profitable and compliant with HMRC regulations. From tax planning to property portfolio management, we’re here to support you at every step of the way.

Rental income – frequently asked questions

What expenses can I claim as a landlord?
As a landlord, you can claim a variety of allowable expenses, including property maintenance and repairs, letting agent fees, landlord insurance premiums, accountant’s fees and utility bills (if you cover them for your tenants). These expenses help reduce your taxable income and lower your tax bill.

How does mortgage interest tax relief work for landlords?
Since April 2020, mortgage interest tax relief has been restricted to a basic rate reduction of 20%. This means landlords can no longer deduct mortgage interest from their rental income to reduce their tax bill. Instead, you can claim a tax credit worth 20% of your mortgage interest payments.

What is the Rent-a-Room scheme?
The Rent-a-Room scheme allows live-in landlords to earn up to £7,500 tax-free per year by renting out furnished rooms in their home. This tax exemption applies to individuals who rent part of their home and is available whether you rent directly or through a letting agent.

Should I set up a limited company for my rental properties?
Incorporating a limited company can be beneficial for landlords with multiple properties, as it allows profits to be taxed at the corporation tax rate of 25%, which can be lower than personal income tax rates. However, the decision to incorporate depends on your circumstances, so it’s recommended that you seek professional advice.

How long do I need to keep records for my rental property?
HMRC requires landlords to keep accurate records of their rental income and expenses for at least five years after the 31 January submission deadline for the relevant tax year. Keeping organised records helps ensure you’re compliant with tax laws and can claim all allowable expenses.

What is the latest with furnished holiday lets?

We recently published a blog titled The FHL regime will be abolished from April 2025: What this means for furnished holiday let tax rules which will tell you everything you need to know.

Do I need an accountant to manage my rental property finances?
While it’s not a legal requirement, hiring an accountant can help you navigate tax laws, maximise your income and ensure compliance with HMRC regulations. Accountants can also provide valuable advice on tax planning, allowable expenses and whether incorporating a limited company is the right move for you.

Final thoughts

Maximising your rental income is about more than just collecting rent. By understanding the various expenses you can claim, taking advantage of available tax reliefs and planning your property finances carefully, you can reduce your tax liabilities and boost your profitability.

For tailored advice on accounting for landlords that suits your individual situation, speak to us today.