Buying Rental Properties

When you buy a new rental property, the purchase itself doesn't affect your Making Tax Digital reporting. Capital transactions like property acquisitions sit outside MTD — they matter for Capital Gains Tax when you eventually sell, not for your quarterly updates or final declaration.

This guide explains what to do when you buy a property, what costs you can and can't claim against rental income, and how to avoid common mistakes.

The purchase doesn't go through MTD

Buying a property is a capital transaction. Capital costs aren't allowable against rental income and don't appear in your quarterly updates or final declaration.

What this means:

  • The purchase price doesn't reduce your rental income for tax purposes
  • Stamp Duty Land Tax (SDLT) isn't an allowable expense
  • Legal fees for buying the property are capital costs, not revenue expenses
  • Your deposit payment doesn't affect your Making Tax Digital submissions

These costs still matter — they form part of your base cost when you eventually sell the property and calculate Capital Gains Tax. But for MTD, they're invisible.

What to do when you buy a property

Add the property in Provestor

Before you start recording income or expenses for a new property, add it to Provestor:

  1. In Settings, choose Properties
  2. Choose Add Property
  3. Fill in the property details (name, type, ownership percentage, purchase date)

Once added, you can start recording rental income and expenses for that property.

For detailed guidance on adding properties, see How to add your properties.

Don't record the deposit or purchase price as expenses

If you pay a deposit or the purchase price from a bank account you're tracking in Provestor, don't record these as expenses. They're capital movements, not business expenses.

If the money leaves a business bank account you're tracking:

Record the payment as a transfer out. This keeps your account balance accurate without incorrectly claiming the cost as a business expense.

For guidance on recording transfers, see Recording transfers between accounts.

What you can claim

While the purchase itself isn't allowable, certain costs related to buying and setting up a rental property are deductible against rental income.

Mortgage arrangement costs

If you take out a mortgage to buy the property, the arrangement costs are allowable as property finance costs.

You can claim:

  • Mortgage arrangement fees or product fees
  • Broker fees for arranging the mortgage
  • Valuation fees required by the lender
  • Legal fees charged by the lender for setting up the mortgage

You cannot claim:

  • The mortgage deposit
  • Mortgage capital repayments (only interest is allowable)
  • Legal fees for the property purchase itself (these are capital costs)

Record mortgage arrangement costs as Mortgages and property finance costs in Provestor. Link them to the relevant property.

For detailed guidance on recording mortgage costs, see Recording mortgage interest and property finance costs.

Initial repairs and maintenance

If the property needs repairs to make it lettable, those costs may be allowable — but there's an important exception.

Routine repairs to make a property lettable:

If you buy a property in reasonable condition and carry out repairs to prepare it for tenants (redecorating, fixing broken items, routine maintenance), these are allowable revenue expenses.

Examples:

  • Redecorating between purchase and first tenant
  • Fixing a broken boiler or leaking tap
  • Replacing worn carpets with similar quality
  • Servicing the heating system

Exception: derelict or run-down properties

If you buy a property in a derelict or run-down state — either at a substantially reduced price or in a condition that's not fit for rental — the costs to restore it to a lettable state are capital expenses, not repairs.

HMRC's view is that work to turn an uninhabitable property into a lettable one improves the property, even if you're just restoring it to its original condition. These costs aren't allowable against rental income but should be tracked for Capital Gains Tax.

The key test: Was the property in a fit state for letting when you bought it? If yes, repairs are likely allowable. If no, they're likely capital.

For detailed guidance on the repair vs improvement test, see Capital and revenue expenses.

What you cannot claim

Stamp Duty Land Tax (SDLT)

Stamp Duty Land Tax is a capital cost. You cannot claim it as an expense against your rental income.

SDLT forms part of your acquisition cost for the property and may reduce Capital Gains Tax when you sell, but it has no place in your Making Tax Digital submissions.

Legal fees charged for buying the property itself (conveyancing fees, searches, Land Registry fees) are capital costs, not allowable expenses.

The distinction:

  • Legal fees for the property purchase → Capital (not allowable)
  • Legal fees for the mortgage (charged by the lender) → Allowable as finance costs

Capital improvements

Any work that improves the property beyond its original condition is a capital expense.

Examples of capital costs:

  • Installing central heating where there was none before
  • Adding an extension or extra room
  • Replacing a basic kitchen with a higher specification one
  • Initial furnishing of the property (furniture, appliances, carpets provided for tenants)

These costs aren't allowable against rental income, but you should track them. They may reduce Capital Gains Tax when you sell.

For detailed guidance on what counts as capital vs revenue, see Capital and revenue expenses.

Common mistakes to avoid

Recording the deposit as an expense

If you pay a deposit from your business bank account, don't record it as a business expense. It's a capital movement.

How to handle it:

Record the deposit as a transfer out of your business account. This prevents it from incorrectly appearing in your quarterly updates while keeping your account balance accurate.

These are capital costs and cannot be claimed against rental income. If you've recorded them as expenses in error, correct them before submitting your next quarterly update.

How to fix it:

  • Delete the expense transaction
  • If you're tracking account balances, record the payment as a transfer instead
  • Keep the receipts for your Capital Gains Tax records

Treating initial furnishing as revenue

When you first furnish a rental property, the cost of furniture, appliances, and carpets is capital expenditure. You cannot claim it as an expense.

Once the property is let and items wear out, replacing them may qualify for replacement of domestic items relief. But the initial purchase doesn't qualify.

For detailed guidance on replacement relief, see Capital and revenue expenses.

Allowable costs (mortgage fees, initial repairs)

For costs that are allowable:

  1. In your business workspace, navigate to the account where you paid the expense
  2. Add the transaction
  3. Choose the appropriate category:
    • Mortgages and property finance costs for mortgage arrangement fees
    • Repairs and maintenance for initial repairs (if not capital)
  4. Link to the relevant property
  5. Save

Provestor includes these in your quarterly updates automatically.

For step-by-step guidance on recording expenses, see Capturing expenses.

For capital costs:

  1. Add the transaction
  2. Enter the full amount
  3. In the advanced options, enter the capital amount (equal to the full expense amount)
  4. Save

Provestor excludes capital expenses from your quarterly updates but keeps them in your records. When you eventually sell the property, these records support your Capital Gains Tax calculation.

For detailed guidance on recording capital expenses, see Capital and revenue expenses.

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