Landlord expenses rise sharply outpacing rental income growth

Landlord expenses rise sharply outpacing rental income growth

HMRC data analysis reveals that landlord expenses in England have increased significantly faster than rental income over the past five years, with costs now consuming nearly 59% of rental income. This trend poses challenges for private landlords amid tightening regulations and tax changes.

Recent figures from HM Revenue & Customs (HMRC), analysed by lettings platform Hello Neighbour, show that in the tax year 2024-25 unincorporated landlords declared £34.75 billion in allowable expenses against £58.99 billion of rental income. This compares with £22.33 billion of expenses and £46.69 billion of income five years earlier. Expenses have therefore risen by 56%, while income has increased by 26%, pushing the share of rental income consumed by expenses from 47.8% to 58.9%.

The average rental income per landlord reached £20,500 in 2024-25, the highest in the five-year series, while average declared expenses grew to £13,700. Notably, total expenses rose 11% in the most recent year alone, while rental income remained fairly consistent according to HMRC.

Breakdown of landlord expenses and tax implications

Repairs and maintenance remain the most commonly declared expense category, claimed by 1.92 million landlords, representing 66% of the landlord population. These landlords claimed a total of £6.41 billion, averaging £3,339 per landlord in a single year. HMRC’s figures exclude capital improvements such as kitchens, extensions, and energy efficiency upgrades, which are not classed as allowable expenses but represent significant future costs for landlords.

Finance costs are now the largest single category of landlord expenses, reaching £12.82 billion in 2024-25 and accounting for 37% of all declared expenses. These costs were claimed by 1.15 million landlords, with an average of £11,148 each. Since April 2020, the Section 24 restriction means finance costs are no longer fully deductible when calculating rental profits for individual landlords. Instead, landlords receive a tax credit worth 20% of the finance cost.

This tax change disproportionately affects higher rate taxpayers. For example, on average finance costs of £11,148, a higher rate taxpayer receives £2,230 of relief instead of the £4,459 they would have received under full deductibility, leaving them roughly £2,230 worse off annually on an identical property. Companies owning rental properties remain exempt from this restriction and continue to deduct finance costs in full, creating a disparity based on ownership structure rather than property or tenant factors.

Context of rising regulatory and compliance costs

The increase in expenses comes as landlords face a growing schedule of statutory obligations not applicable to owner-occupiers. All privately rented homes in England must meet an Energy Performance Certificate (EPC) rating of C or higher, or register an exemption, by 1 October 2030. Additionally, the forthcoming Decent Homes Standard will apply to the sector from 2035, setting minimum quality and safety benchmarks.

Government grant support currently covers the full cost of one property upgrade per landlord, with landlords required to contribute 50% toward additional properties. This partial funding places further financial pressure on landlords to meet these standards amid rising costs and tax restrictions.

Phil Shelley, chair of Hello Neighbour, highlighted the unsustainable nature of the current cost increases, saying the sector cannot absorb costs rising at twice the rate of income indefinitely. He emphasised the need for policy to support compliant landlords in meeting standards rather than solely penalising non-compliance.

Practical implications for landlords and agents

For landlords, especially those operating as individuals or partnerships rather than companies, the rising expense burden and tax restrictions significantly reduce net rental income. This squeeze may affect decisions on property maintenance, investment in energy efficiency improvements, and portfolio expansion.

Letting agents should be aware of these financial pressures when advising landlord clients, particularly regarding tax planning and compliance with upcoming regulatory standards. The disparity in tax treatment between individual landlords and companies may prompt some to consider restructuring ownership, although this involves legal and financial complexities.

Maintenance and repair costs, while essential for tenant safety and property standards, are rising alongside statutory compliance requirements. Landlords need to plan for these costs well in advance, factoring in the partial nature of government grants and the exclusion of capital improvements from allowable expenses.

Uncertainties and considerations for the future

It remains uncertain how government policy will evolve to address the imbalance between rising landlord costs and rental income. Potential changes to tax reliefs, grant funding levels, or regulatory timelines could materially impact landlord finances. The long-term impact of the Decent Homes Standard and EPC requirements on landlord expenditure is also yet to be fully realised.

Landlords should monitor official guidance closely and consider professional advice on tax and compliance matters. The ongoing disparity in tax treatment based on ownership structure may also be subject to future review, given its impact on the sector.

Key actions landlords should take now

• Review and update financial records to accurately capture all allowable expenses, including repairs and maintenance.
• Plan for upcoming regulatory compliance costs, especially EPC upgrades and Decent Homes Standard requirements.
• Consider the tax implications of current ownership structures and explore whether company ownership might offer advantages.
• Stay informed on government grant availability and application processes for energy efficiency improvements.
• Maintain clear documentation of all expenditure and communications related to property management and compliance.

Supporting landlords through compliance challenges

Membership of The Landlord Association (TLA) offers access to practical compliance resources and guidance tailored to the evolving regulatory environment. TLA’s property management platform, ORBIT, currently in BETA testing, is designed to help landlords and letting agents organise portfolios, manage rental documentation, and keep records of repairs, inspections, and communications. These tools can assist in maintaining evidence of compliance activities and preparing for new obligations such as EPC and Decent Homes Standard requirements.

Exploring TLA membership can provide landlords with up-to-date information on tax changes, expense management, and regulatory developments. ORBIT’s features under development aim to support landlords in navigating the increasing complexity of property management and compliance, helping to reduce administrative burdens and improve record-keeping accuracy.

Accessing TLA member compliance support and ORBIT BETA access offers practical assistance in managing rising costs and regulatory demands effectively.

The next few years will be critical for landlords adapting to these financial and regulatory pressures, requiring careful planning and informed decision-making to sustain rental business viability.

Sources: Landlord Today