When it comes to property rental tax implications, in general, any expense that is necessary for the running of the business is considered to be an allowable expense. It is also important to note that there are certain other costs that may be considered an allowable expense. These include costs associated with operating a website or app, such as web hosting and development costs. Additionally, any legal fees or professional fees that are incurred in the course of running the business may also be considered an allowable expense. Running a Service Accommodation business unlike the traditional rental marketplace, capital costs which doesn’t affect profit may be claimed against property rental tax.
Please note: Good sound advice should be taken from a qualified accountant especially one who specialises in Property.
Property Rental Tax Implications
When it comes to property rental tax implications, first and foremost, it is important to understand the difference between allowable and non-allowable expenses.
Allowable property rental expenses are those that are necessary for the running of the business. These include things like rental income, insurance, utilities, repairs and maintenance, advertising, staff costs and any other expenditure that is necessary for the business to operate. Non-allowable expenses are those that are not necessary for the business to operate, such as entertainment or luxury items. When it comes to allowable expenses for a service accommodation business in the UK, there are a few key areas to consider.
When it comes to property rental tax implications, first and foremost, it is important to understand the difference between allowable and non-allowable expenses.
Allowable property rental expenses are costs that are wholly and exclusively incurred for the purpose of running your rental business. These are legitimate deductions that can be offset against your rental income to reduce your overall tax liability. Common examples include:
- Mortgage interest (not the full repayment, just the interest portion if you’re operating under standard rental income rules)
- Insurance – including buildings, contents, and public liability cover
- Utility bills – gas, electricity, water, broadband, and council tax, especially if these are included in the rent for short-term stays
- Repairs and maintenance – such as fixing a leaking tap, repainting, or replacing worn furnishings (not improvements or renovations)
- Advertising and marketing costs – like listing fees on Airbnb or Booking.com, or even your own website and SEO costs
- Management and staff costs – if you hire a property manager, cleaner, or maintenance staff
- Accountancy fees – for professionals who help you with tax returns and bookkeeping
- Consumables – including welcome packs, toiletries, and cleaning supplies regularly provided to guests
- Travel costs – when directly related to managing or checking up on the property
On the other hand, non-allowable expenses are those which are either personal in nature, capital in value (i.e., long-term improvements), or not essential to the business. These may include:
- Buying or upgrading furniture (capital expenditure)
- Costs related to your own personal use of the property
- Fines or penalties (e.g., parking fines)
- Entertainment or hospitality expenses not directly related to business operations
When it comes to allowable expenses for a property rental business in the UK, HMRC may treat your income as trading income rather than just passive rental income, particularly if you offer additional services such as cleaning, laundry, breakfast, or concierge-type support. This could make your property fall under Furnished Holiday Lettings (FHL) rules, which come with specific tax advantages — such as capital allowances for furniture and the potential to contribute to a pension scheme.
It’s vital to keep accurate records and receipts for all expenses, separating private and business use where necessary. If an item or service is used for both personal and business reasons, only the business portion can be claimed. Getting your accounts right from the outset can save a lot of stress — and money — when it comes time to complete your tax return.
To avoid any missteps, it’s always wise to speak to a qualified accountant who understands the nuances of property and serviced accommodation taxation. They can help you maximise allowable expenses, stay compliant, and structure your business in the most tax-efficient way possible.
Keeping records when renting a property
Finally, it is important to make sure that all allowable property rental expenses are correctly documented and reported. This means keeping records of all receipts, invoices and other documents related to the business’ expenditure. This will help to ensure that all allowable expenses are correctly accounted for and that any potential tax liabilities are correctly reported.
In conclusion, it is important to understand what constitutes an allowable expense for a service accommodation business in the UK so you can comply with property rental tax in the long run. These include rent, rates, insurance, utilities, repairs and maintenance, advertising, staff costs and any other expenditure that is necessary for the business to operate. Additionally, it is important to ensure that all allowable expenses are correctly documented and reported, and that any potential tax liabilities are correctly reported. By doing so, business owners can ensure that their business operates within the confines of the law, and that all costs are correctly accounted for.
All these may sound overwhelming if you are new in running a rental property. Here at House of Luchini, we take on this responsibility and allow the property owners to enjoy their best life. If you’d like to hear how we can help you renting your place, head on to our website or send us a message to hello@houseofluchi.host