Is Rent Tax Deductible UK

Whether you are working from home, running a limited company or renting a premises for your business, understanding if you can deduct rent from your tax bill is essential. Rent can be a significant ongoing cost, and if used for business purposes, it may qualify as a tax-deductible expense.

In the UK, rent is tax deductible in certain situations, but not all. The deduction depends on why you are paying rent, what the space is used for, and how your business is structured. HMRC’s key requirement is that the expense must be wholly and exclusively for the purpose of trade to qualify as an allowable deduction.

This article explains when rent is tax deductible for sole traders, landlords, employees and limited companies, and what records you need to support your claim.

Rent for Sole Traders and the Self Employed

If you are self employed and work from home or rent a space specifically for your business, you can usually claim some or all of the rent as a business expense.

1. Renting a separate business premises
If you rent a shop, office, storage unit or workshop purely for your business, the full rent is fully tax deductible as a business expense. You must keep a record of the rental agreement and ensure the property is used solely for business purposes.

2. Working from home and claiming a portion of rent
If you run your business from home, you can only deduct the portion of your rent that relates to business use. You cannot claim the full rent unless the entire property is used exclusively for work.

You can calculate your claim in one of two ways:

• Flat rate method: HMRC allows simplified expenses based on the number of hours you work from home each month.

• Apportioned method: You divide your rent and other home expenses based on floor area and time used for business.

For example, if you use one room out of five for business 8 hours a day, 5 days a week, you can deduct a proportion of the rent based on usage. Personal use must be excluded.

You cannot claim rent for a room that is also used for personal living unless the business use is clearly dominant.

Rent for Limited Companies

If your limited company rents a commercial premises, the full rent is deductible for Corporation Tax purposes as a business expense. The company must hold the lease or rental agreement in its name, and the space must be used exclusively for company activities.

Working from home as a company director

If you run your limited company from home, the company cannot simply claim a share of your household rent as a deduction. There are two accepted approaches:

1. Rent the space to the company
You can set up a rental agreement between you (personally) and the company for use of part of your home. The rent paid by the company is deductible for Corporation Tax, and you declare the income on your personal Self Assessment return.

This needs to be formalised with:

• A written rental agreement

• A fair market rent for the space used

• Records showing the business use

You may be able to offset some expenses against this rental income to reduce your personal tax liability. However, be aware of the impact on Capital Gains Tax if the space is considered used solely for business.

2. Reimburse use of home expenses

A simpler method is for the company to reimburse you using HMRC’s use of home as office allowance. This is typically £6 per week (£312 per year) without requiring receipts, or more with full records and justification. The company can claim this amount as an expense, and you do not need to declare it personally if the reimbursement is fair.

You must only claim costs that are clearly associated with business use. Private living costs cannot be reimbursed through the company.

Employees Renting Space to Work

If you are an employee and rent a space for work, you cannot claim rent as a tax deduction unless your employer requires you to do so and you meet very strict conditions.

HMRC rarely allows employees to claim expenses for working from home or renting office space unless:

• The employer requires you to work from that space

• The cost is wholly and exclusively for the purpose of your employment

• The employer does not provide suitable workspace elsewhere

Most employees who work from home by choice or arrangement do not qualify to claim rent expenses, though they may be eligible for small fixed-rate relief through payroll or a Self Assessment claim.

Rent as an Expense for Landlords

If you are a landlord and rent a property yourself to sublet or use for property business purposes, you may be able to deduct the rent as part of your rental business costs.

This could apply if:

• You sublet a property under a leasehold arrangement

• You rent a unit in a larger building and sublet to tenants

• You provide short-term accommodation or serviced lets

The rent you pay to the owner or leaseholder is deductible from your rental income when calculating your profits, provided you declare the income from the subletting.

As with all expenses, the rent must be incurred wholly and exclusively for the property business, and the transaction should be commercially structured with appropriate contracts in place.

When Rent Is Not Deductible

There are several situations where rent is not tax deductible:

• You rent a property for personal living and use it casually for business (e.g. sending emails from your kitchen)

• You rent a holiday home and occasionally work from it

• You claim rent without apportioning the cost fairly

• You do not have evidence to support the business use

Rent is never deductible if it relates to personal lifestyle, mixed-use without a clear business proportion, or is not incurred as part of generating business income.

HMRC may disallow claims that are inflated or unsupported, and could apply penalties for careless or deliberate over-claiming.

Keeping Records and Evidence

To claim rent as a deductible expense, you must keep:

• A valid rental agreement or lease

• Proof of payments (bank statements, receipts)

• Records showing business use (room plans, usage logs)

• Any correspondence with landlords, letting agents or co-tenants

If you apportion rent, keep calculations showing how you arrived at the figure claimed. HMRC can request evidence during an enquiry and may disallow expenses that are not properly substantiated.

Conclusion

Rent is tax deductible in the UK when it is incurred wholly and exclusively for business purposes. This includes commercial premises rented by sole traders and companies, and home office costs where business use can be clearly demonstrated.

For self employed workers, a proportion of home rent can be claimed using simplified or actual cost methods. For limited companies, deductions may apply through reimbursement or rental agreements, but must be supported by proper documentation.

Claiming rent as a business expense requires careful distinction between personal and business use, clear records and compliance with HMRC guidance. Done correctly, it can reduce your tax bill and reflect the real costs of operating your business. If in doubt, seek advice from a qualified accountant to make sure your claim is accurate, fair and fully allowable.