Can I deduct letting agent fees from my rental income?

Letting agents can save landlords a great deal of time, especially when it comes to finding tenants and managing day-to-day issues. However, their services come at a cost, which can significantly reduce profit if you are not aware of what can be claimed. The good news is that, in most cases, letting agent fees are considered an allowable expense for tax purposes.

Understanding allowable expenses

HMRC allows landlords to deduct certain expenses that are wholly and exclusively for the purpose of renting out a property. This means any cost that is directly linked to the management or upkeep of your rental business can usually be offset against your income before tax is calculated.

Allowable expenses include mortgage interest (subject to restrictions), insurance, repairs, maintenance, and management fees. Letting agent fees fall under the management category, making them one of the most common and straightforward deductions for landlords.

What letting agent fees are deductible

Most standard letting agent services qualify as deductible expenses, provided they relate to the ongoing management or letting of the property. Typical examples include:

• Tenant find fees for advertising and referencing potential tenants

• Full management fees for rent collection, inspections, and maintenance arrangements

• Tenancy renewal or extension fees

• Check-in and check-out services

• Inventory preparation fees

• Legal or compliance costs charged by the agent, such as tenancy deposit protection administration

These costs are deductible whether you pay them monthly or as a one-off charge. The key requirement is that the expense must relate solely to the rental activity and not include any personal services.

What cannot be deducted

Not all costs related to property are allowable. You cannot deduct expenses that are capital in nature or relate to the purchase or improvement of the property. Examples include:

• Letting agent fees incurred before the property was available to let

• Costs related to selling or buying a property

• Capital improvements such as new extensions or structural upgrades

• Fees for finding tenants before the property was first let if it was not yet available for rent

If you are unsure whether an expense is capital or revenue in nature, consider whether it provides an enduring benefit or improves the property’s value rather than maintaining it. Capital costs may qualify for Capital Gains Tax relief when you sell, but they cannot reduce your rental income tax now.

Example: deducting letting agent fees in practice

Imagine you receive £18,000 per year in rent from a property. Your letting agent charges a 10% management fee plus VAT, totalling £2,160. You also pay £300 for tenant referencing and £120 for inventory services.

In total, you have spent £2,580 in letting agent fees. You can deduct the full amount from your rental income, reducing your taxable rental profit to £15,420. You’ll then pay tax on that lower figure rather than on the full £18,000.

This deduction can make a meaningful difference, particularly for landlords with higher-rate tax liabilities or multiple properties under management.

How this applies to limited companies

For landlords operating through a limited company, letting agent fees are treated as a business expense and deducted from the company’s rental income before calculating Corporation Tax. The same principle applies: if the cost is wholly and exclusively for the rental business, it is allowable.

Unlike individuals, limited companies can also claim additional deductions for certain professional fees and interest expenses, provided they are accounted for correctly. Keeping your agent invoices and contracts organised is essential for both accounting accuracy and HMRC compliance.

Record keeping and evidence

HMRC expects landlords to maintain accurate records showing how much was paid, to whom, and for what service. Keep copies of:

• Letting agent contracts or management agreements

• Invoices or statements showing fees and VAT

• Payment confirmations or bank statements

• Correspondence showing the purpose of each fee

These records must be kept for at least five years after the Self Assessment deadline or six years for companies. Cloud accounting software can make this easier by linking payments directly to invoices and categorising them as management fees.

VAT on letting agent fees

If your letting agent is VAT registered, the VAT element of their fee is part of the total expense you can claim. For example, if an agent charges £1,000 plus VAT (£1,200 total), you can deduct the full £1,200. Landlords who are VAT registered rare in residential letting may be able to reclaim VAT separately, but most residential landlords simply deduct the total cost.

Differences for furnished holiday lets

If your property qualifies as a furnished holiday let (FHL), you can also deduct letting agent fees as an allowable expense. However, the accounting treatment may differ slightly because FHLs are treated as trading businesses for tax purposes. This distinction can sometimes allow for additional reliefs, such as Capital Allowances on furniture or equipment.

For non-FHL residential lettings, letting agent fees are still deductible but are treated under property income rules rather than trading income. The practical outcome is usually the same: the fees reduce your taxable rental profit.

Claiming letting agent fees on your tax return

For individuals, letting agent fees are included as part of your total property expenses when completing your Self Assessment. You don’t need to list each type separately unless HMRC requests a breakdown. Just ensure the total management and professional fees section accurately reflects what you paid.

Limited companies include the expense in their profit and loss account, usually under “Property management fees” or “Professional services.” The deduction automatically reduces the profit subject to Corporation Tax.

Common mistakes to avoid

Many landlords miss out on legitimate deductions or make small but costly mistakes when claiming letting agent fees. Avoid the following:

• Forgetting to include VAT in your total expense figure

• Claiming fees for services unrelated to letting activity

• Misclassifying capital costs as revenue expenses

• Failing to keep copies of invoices or statements

• Claiming fees that relate to a period before the property was available to rent

It’s also worth checking your letting agent’s breakdown carefully, as some agents combine management, maintenance, and repair costs in one invoice. Split these amounts correctly in your records to ensure each is claimed in the right category.

Professional advice and software support

Using an accountant who understands property taxation can save both time and money. They can help you separate allowable and disallowable expenses, prepare rental accounts accurately, and ensure you claim the full range of deductions available.

Many landlords now use software such as Xero, QuickBooks, or FreeAgent to track income and expenses. These systems can automatically import transactions, making it easier to link letting agent payments directly to your rental income.

Conclusion

Yes, you can deduct letting agent fees from your rental income, provided they are incurred wholly and exclusively for managing or letting your property. These deductions reduce your taxable profit and can have a significant impact on your overall tax bill.

Keep all invoices and payment records, include the total cost (including VAT) in your accounts, and ensure you distinguish between management fees and capital costs. With accurate bookkeeping and an understanding of HMRC’s rules, you can confidently claim letting agent fees and manage your property tax efficiently.