Can I deduct letting agent fees from my rental income?

At Towerstone Accountants we provide specialist property accountant services for landlords property investors and individuals dealing with property tax and reporting obligations across the UK. This article has been written to explain Can I deduct letting agent fees from my rental income in clear practical terms so you understand how the rules apply in real situations. Our aim is to help you make informed decisions avoid costly mistakes and know when professional advice is worthwhile.This is a question I am asked constantly by landlords and it usually comes up at exactly the right time. You receive your annual statement from the letting agent, you see the fees deducted each month, and you quite reasonably want to know whether those costs reduce the tax you pay on your rental income.

The short answer is yes in most cases you can deduct letting agent fees from your rental income when calculating your taxable rental profit. However as with most property tax questions the detail matters. What the fee relates to, how it is described, whether it is revenue or capital in nature, and how your property business is structured all affect the final tax position.

In this article I will explain clearly when letting agent fees are deductible, when they are not, how they should be treated for tax purposes, and the common mistakes I see that lead to overpaying tax. I will also cover how these rules apply in practice for different types of landlords so you can apply them confidently to your own situation.

How Rental Income Is Taxed in the UK

Before looking specifically at letting agent fees it helps to understand how rental income is taxed.

If you rent out property in the UK you are taxed on the profit from your property business. Profit is calculated as:

Rental income received

Less allowable expenses

Equals taxable rental profit

You then pay Income Tax on that profit at your marginal rate if you are an individual landlord or Corporation Tax if the property is held in a company.

Letting agent fees fall into the category of expenses and in most cases they are allowable deductions.

What Are Letting Agent Fees?

Letting agent fees are charges made by an agent for managing or assisting with the letting of your property.

These fees can include:

Tenant find fees

Full management fees

Rent collection fees

Renewal fees

Inventory and check in costs

Compliance administration

Agents often bundle these together which can sometimes obscure how the costs should be treated for tax.

The Basic Rule for Deducting Letting Agent Fees

The general rule is straightforward.

You can deduct letting agent fees from your rental income if the fees are incurred wholly and exclusively for the purpose of letting and managing your rental property.

This means the fees must relate directly to earning rental income rather than to improving or acquiring the property.

Most routine letting and management fees meet this test.

Letting Agent Fees That Are Usually Deductible

In practice the majority of letting agent fees are allowable as revenue expenses.

Common deductible fees include:

Monthly management fees

Rent collection charges

Tenant referencing and credit checks

Inventory preparation for new tenancies

Tenancy renewal fees

Day to day administration charges

These are all costs of running your rental business and are generally deductible in the year they are incurred.

I regularly see landlords overlook these deductions simply because they assume the agent has already dealt with the tax side. Agents do not handle your tax. The responsibility remains with you.

Tenant Find Fees and Set Up Costs

Tenant find fees are usually deductible.

These are fees charged for:

Advertising the property

Finding suitable tenants

Arranging viewings

Setting up the tenancy

Although these fees relate to starting a tenancy they are still considered revenue expenses because they relate to the ongoing rental business rather than to acquiring or improving the property itself.

This applies whether you are letting the property for the first time or replacing an existing tenant.

Management Fees and Ongoing Charges

Ongoing management fees are almost always deductible.

These typically cover:

Collecting rent

Dealing with tenant queries

Arranging repairs

Compliance administration

These costs are a core part of managing rental property and there is rarely any dispute about their deductibility.

Letting Agent Fees That Are Not Deductible

Where things become more complex is when letting agent fees relate to capital expenditure rather than revenue expenditure.

Capital expenditure is not deducted from rental income. Instead it may be added to the property’s base cost for Capital Gains Tax purposes when the property is sold.

Examples of letting related costs that may not be deductible include:

Fees directly linked to buying a property

Fees linked to selling a property

Costs of arranging major improvements

If a letting agent charges a fee that is part of acquiring the property rather than letting it that fee is not deductible from rental income.

Fees Linked to Buying a Property

If a letting agent is involved in the purchase of a property their fees are usually capital in nature.

Examples include:

Sourcing fees for investment properties

Finder’s fees paid to agents

Fees linked to negotiating the purchase

These costs are not deducted from rental income. They are usually added to the purchase cost of the property for Capital Gains Tax calculations later.

Fees Linked to Selling a Property

Similarly fees linked to selling a rental property are not deductible from rental income.

These include:

Sales commission

Marketing fees for sale

Fees for arranging a sale

These costs are also capital and are usually deducted from the sale proceeds when calculating Capital Gains Tax.

Repairs vs Improvements and Agent Fees

Another area where confusion arises is when letting agent fees relate to repairs or improvements.

If an agent charges a fee for arranging repairs:

The agent fee is usually deductible

The repair cost itself is usually deductible

However if the work is an improvement rather than a repair:

The agent fee may be capital

The improvement cost is capital

For example replacing a broken boiler with a like for like model is a repair. Upgrading a property significantly may be an improvement.

The nature of the underlying work drives the tax treatment.

How Letting Agent Fees Are Treated for Cash Basis and Accruals

Most individual landlords use the cash basis of accounting.

Under the cash basis:

Expenses are deducted when paid

Letting agent fees are deducted in the year they are paid

Under the accruals basis:

Expenses are matched to the period they relate to

For most landlords the difference is minimal but it is important to be consistent.

Can I Deduct Letting Agent Fees If the Property Is Empty?

Yes in many cases.

If your property is temporarily empty and you are actively seeking tenants you can usually deduct ongoing letting agent fees.

This includes:

Management fees during void periods

Advertising costs to find tenants

The key point is intention. If the property is genuinely available to let the expenses are usually allowable.

Letting Agent Fees and the Property Allowance

Some landlords choose to use the property allowance instead of claiming actual expenses.

The property allowance is £1,000 per tax year.

If you use the property allowance:

You cannot deduct individual expenses

Letting agent fees are not separately claimed

This can be useful for landlords with very low expenses but it is rarely beneficial where letting agent fees are significant.

I always advise comparing the allowance to actual costs before deciding.

Letting Agent Fees for Furnished Holiday Lets

For qualifying furnished holiday lets the rules are similar but the context differs.

Letting agent fees are usually deductible if they relate to:

Booking management

Guest services

Cleaning coordination

Ongoing management

Holiday lets often have higher agent involvement which makes these deductions particularly important.

Letting Agent Fees for Overseas Properties

If you own overseas rental property the principles are similar but the reporting is different.

Letting agent fees are usually deductible against overseas rental income provided they are incurred for that property business.

However overseas tax rules and double tax relief can complicate matters and advice is often worthwhile.

Letting Agent Fees and VAT

Letting agent fees often include VAT.

If you are an individual landlord renting residential property you usually cannot reclaim VAT on letting agent fees because residential rents are VAT exempt.

This means:

You deduct the gross fee including VAT

You do not reclaim the VAT separately

For commercial property or VAT registered landlords the position may be different.

Common Mistakes I See With Letting Agent Fees

Over the years I see the same issues come up repeatedly.

The most common mistakes include:

Not claiming letting agent fees at all

Treating capital fees as revenue expenses

Missing VAT treatment on agent invoices

Using the property allowance when actual expenses are higher

Not keeping agent statements and invoices

These mistakes often lead to paying more tax than necessary.

What Evidence Do I Need?

To deduct letting agent fees you should keep:

Letting agent invoices

Monthly statements

Contracts with the agent

Good records make it far easier to justify deductions if HM Revenue & Customs ever asks questions.

How Letting Agent Fees Are Declared on a Tax Return

For individual landlords letting agent fees are included as part of allowable expenses on the property pages of the Self Assessment tax return.

They are usually grouped under:

Legal management and professional fees

For companies they are included as deductible expenses in the profit and loss account.

Practical Advice I Give Landlords

When landlords ask me about letting agent fees I usually give the same advice.

I recommend:

Review agent statements annually

Separate revenue and capital fees

Keep invoices and contracts

Do not assume agents handle tax correctly

Ask for advice if fees look unusual

Small attention to detail here can save significant tax over time.

So Can You Deduct Letting Agent Fees From Your Rental Income?

In most cases yes you can deduct letting agent fees from your rental income. The majority of management and tenant related fees are allowable revenue expenses and reduce your taxable rental profit.

However fees linked to buying selling or significantly improving a property are usually capital and not deducted from rental income. Understanding that distinction is key.

Property tax is rarely about one big decision. It is about lots of small correct treatments added together. Claiming letting agent fees correctly is one of the simplest ways to ensure you are not paying more tax than you need to.

You may also find our guidance on Can I claim repairs and maintenance on my rental property and How do I calculate my rental income profit useful when exploring related property tax questions. For a broader overview of property tax reporting and planning topics you can visit our property hub which brings all related guidance together.