What Can You Claim on an Investment Property? A Landlord Guide to Allowable Costs

Every landlord asks this the same way: after the mortgage, insurance, the agent’s cut and a repair bill you didn’t budget for, how much of that actually reduces your tax bill? Get it right and you keep more of what the property earns. Get it wrong and you either overpay HMRC every year, or claim something you shouldn’t, which is far costlier to unwind later. 

This guide covers what you can claim on an investment property in England, where the lines genuinely blur (capital allowances trip up even experienced landlords), and where HMRC will simply say no. As HMO Architects, we see this from both sides: as architects who design the split between private and shared space, and as investors who live with the tax consequences of it. That dual view, the HMO Architects Dual-Lens Approach™, matters here more than it looks, since how a building is designed often decides what you’re allowed to claim. 

For how these costs feed into your actual return, our rental yield guide is a useful companion, or book a free call with us first if you’d rather talk it through. 

What “allowable” actually means 

HMRC splits costs into two buckets, and mixing them up is where most landlords go wrong. Revenue costs — repairs, insurance, agent fees, cleaning — come off your rental income in the year you pay them. Capital costs improve the property beyond its original condition: an extension, or a rewire that upgrades rather than repairs. These don’t reduce your income tax bill; they’re added to the property’s cost base and only reduce Capital Gains Tax when you sell. 

The test HMRC applies is whether a cost was incurred “wholly and exclusively” for the property business. A boiler replaced like for like is a repair. A boiler upgrade that also adds heating to rooms that never had it is an improvement. Get this wrong on a large refurbishment and the tax difference can run into thousands, so check every sizeable invoice against this line before you file. 

The everyday costs most landlords already claim 

Most running costs are straightforwardly allowable, provided they’re genuinely revenue rather than improvement: letting agent and management fees, landlord insurance, ground rent and service charges, accountancy fees, tenancy agreement legal fees, advertising a vacant room, the HMO licence fee, and gas and electrical certificates. 

Replacement of Domestic Items Relief covers furniture, white goods and kitchenware replaced like for like, so a new fridge replacing a worn one is deductible, though furnishing a property for the first time is not. Genuine repairs — redecorating, fixing a leak, a like-for-like window — are allowable in full in the year you pay. 

Can you claim travel to an investment property? Yes, where the trip is genuinely for the letting business: inspections, meeting a contractor, a tenant issue. Claim mileage at HMRC’s standard rate or actual vehicle costs, but not for a personal detour, or a daily commute to a property you manage from home. Keep a simple log of date, purpose and mileage. It’s the first thing an accountant asks for. 

Mortgage interest and finance costs: what’s actually left 

Can you claim interest on an investment property? Not in the way most landlords assume. Since April 2020, individual landlords can’t deduct mortgage interest or other finance costs from rental income. Instead, you get a tax credit worth 20% of finance costs, applied after tax is calculated on the full rental profit. This is the Section 24 restriction, and it’s still in place. 

For a basic-rate taxpayer, the effect is broadly neutral. For a higher or additional-rate taxpayer, it isn’t: you pay 40% or 45% tax on the full rental profit, including the portion that went straight to mortgage interest, and get only 20% back as a credit. On a property with a large interest bill relative to rent, this can turn a paper profit into a real cash-flow squeeze even though nothing about the deal has changed. It’s worth stress-testing before you buy the next property, not after. 

Landlords operating through a limited company are unaffected, since mortgage interest is deducted in full as a normal business expense. That’s one reason incorporation keeps coming up in portfolio conversations, though it carries its own costs. 

Capital allowances: where most landlords get the wrong answer 

Can you claim capital allowances on an investment property? For most standard buy-to-lets and shared HMOs, no. Capital allowances specifically exclude plant and machinery “for use in” a dwelling house, and HMRC’s Capital Allowances Manual is direct about what that means inside a house in multiple occupation: shared hallways, stairs, landings, the attic and basement are all part of the dwelling house, including the lighting, heating and fire alarm systems in them. A 2019 tribunal case, Tevfik v HMRC, tested this after a landlord claimed allowances on communal kitchens, bathrooms and circulation space across three HMOs. HMRC’s position was upheld in full. 

This surprises many landlords, because plenty of guides online say the opposite. What actually matters is whether the property is genuinely made up of self-contained dwellings. A block of flats is not itself a dwelling house, even though each flat inside it is one, so the common parts outside the flats’ own front doors — the lobby, stairwell, lift and shared corridors — sit outside every individual dwelling and can qualify. The same generally applies to furnished holiday lettings. The dividing line isn’t whether a space feels shared. It’s whether the building is legally one household’s dwelling house or several self-contained ones, and that comes down to how it was designed and let, not how a landlord describes it on a tax return. 

Should You Claim Capital Allowances on This Area? If the answer is “no” to the first two, don’t claim it, whatever a forum post has told you: 

• Is the property split into genuinely self-contained units, each with its own kitchen, bathroom and front door? 

• Does the area sit outside every unit’s own front door, such as a communal lobby, stairwell or lift? 

• Is this a qualifying furnished holiday letting rather than a standard tenancy? 

Because we design HMOs and self-contained schemes side by side, the HMO Architects™ portfolio of 23+ conversions across 12 UK locations gives us a practical view of this line. At Borough Road in Liverpool, an abandoned office block was originally planned as a 24-bed HMO before market research pointed to stronger demand for self-contained studio flats instead. That design decision, taken years before any tax return was filed, is exactly what later determines whether a landlord can claim allowances on the shared lobby and stairwell. A shared kitchen you can walk into from a communal hallway is still part of the dwelling house, whatever brief you’ve read online. Capital allowances reward buildings designed to separate private space from shared space, not buildings that simply house several tenants. 

This is where our Net Yield Reality Check™ earns its place. Gross rent tells you whether tenants want the rooms. Net yield, once every real cost including your true capital allowances position is factored in, tells you whether you should actually own the property. Landlords who assume communal-area allowances will apply often build them into their return before purchase, only to find HMRC disagrees afterwards. 

Council tax and rates on an investment property 

Can you claim rates on an investment property? For most residential lets, including HMOs, the relevant cost is council tax rather than business rates, and it depends on who’s liable. Where the tenancy agreement makes you responsible, or the property stands empty between tenancies, the amount you pay is fully allowable. In a licensed HMO, the landlord is usually liable for council tax throughout the tenancy, not the tenants, so this is a genuine and often sizeable claim. 

Business rates apply instead only in narrower cases, such as a property genuinely operating as a furnished holiday let that meets the letting-day thresholds. Where that applies, business rates paid are allowable in the same way as council tax. Keep the demand notices and payment records with your other expense evidence, since it’s one of the first things a self-assessment enquiry asks to see. 

Where landlords get caught out (common mistakes)

The most expensive mistake isn’t missing a claim, it’s making one HMRC later rejects, since that brings interest and sometimes penalties on top of the tax owed all along. Claiming capital allowances on standard HMO communal areas is the biggest version we see, followed by treating an improvement as a repair, and claiming a home-to-office commute as a property expense because the property happens to be nearby. 

The quieter mistake is under-claiming. Cautious landlords sometimes stop claiming legitimate costs altogether, including licence fees and genuine business travel. Both directions cost money. The fix is the same: keep a dated, itemised record of every cost as you go, know which side of the revenue-versus-capital line it sits on, and get a second opinion on anything unusual. 

What to do next 

If you’re weighing allowable costs on a single property, our rental yield guide shows how they feed into your real return. Thinking beyond one property, our guide on how to start a property portfolio covers ownership structures, including limited companies, that change how these costs are treated. Landlords managing this alongside compliance paperwork often find dedicated software worth it: Landlord Vision tracks income, expenses and compliance records in one place, which matters more with Making Tax Digital now extending to landlords. 

For the broader landlord fundamentals this tax picture sits inside, Rob Dix’s How to Be a Landlord is a solid general reference.

If cost treatment is only part of a bigger decision — whether to buy, convert or restructure a property — our team can talk it through with you properly on that same call. Portfolio landlords scaling into a second or third HMO often get more from our dedicated strategy call, which goes further into acquisition and structuring decisions than a general enquiry allows. 

None of this needs to hold up a purchase decision. Knowing the answers now just means your numbers at offer stage will still hold once the return is filed. For updates as the rules shift, our HMO Masters newsletter covers changes like this as they happen. 

FAQs 

Can you claim capital allowances on an investment property? 

Generally not on a standard buy-to-let or shared HMO, since HMRC treats shared hallways and communal rooms as part of the dwelling house. Allowances are more likely on the common parts of self-contained flats, or a qualifying furnished holiday letting. Check the specific layout with an accountant first. 

What can you claim on an investment property? 

Revenue costs incurred wholly and exclusively for the letting business: repairs, insurance, agent fees, replacement of domestic items, legal and accountancy fees, travel, and 20% of finance costs as a tax credit. Capital costs and most acquisition costs aren’t deductible from income tax, but reduce Capital Gains Tax when you sell. 

Can you claim interest on an investment property? 

Individual landlords can no longer deduct mortgage interest from rental income directly. Instead, you get a 20% tax credit under Section 24, regardless of your tax rate. Landlords using a limited company can still deduct interest in full. 

Can you claim travel to an investment property? 

Yes, where the journey is genuinely for the letting business and wasn’t combined with personal travel. Keep mileage or actual cost records for every trip. 

Can you claim rates on an investment property? 

Usually council tax applies to residential lets, including HMOs, rather than business rates, and it’s allowable where you’re liable for it. Business rates apply only in narrower cases, such as a qualifying furnished holiday let.