The cost of running a rental property has increased significantly faster than the income generated by landlords, according to an analysis of the latest HM Revenue & Customs (HMRC) figures.
The research, carried out by lettings platform Hello Neighbour, highlights the growing financial pressure facing landlords as they deal with higher running costs, finance expenses and a rising number of regulatory requirements.
Figures for the 2024-25 tax year show that unincorporated landlords reported £34.75 billion in allowable property expenses, compared with £58.99 billion in rental income.
The figures have changed considerably over the past five years. In 2019-20, landlords reported £22.33 billion in expenses against £46.69 billion in rental income.
This means rental income increased by around 26% over the period, while declared expenses climbed by 56%.
As a result, the proportion of rental income being absorbed by allowable expenses increased from 47.8% to 58.9%.
Landlord Income Reaches Record Level
Average rental income per landlord reached £20,500 during 2024-25, making it the highest figure recorded across the five-year period analysed.
However, average declared expenses also reached £13,700 per landlord.
The latest annual figures show just how quickly costs are increasing. Total landlord expenses rose by 11% in 2024-25, while HMRC described overall property income as remaining “fairly consistent”.
For landlords, this creates a growing gap between the amount collected in rent and the money left after the costs of operating a property are taken into account.
Repairs Remain a Major Expense
Repairs and maintenance continue to represent one of the most common costs claimed by landlords.
Around 1.92 million landlords claimed expenses under this category in 2024-25, representing approximately 66% of the landlord population.
In total, £6.41 billion was claimed for repairs and maintenance. Based on the published figures, Hello Neighbour calculates this equates to an average of approximately £3,339 per landlord who claimed the expense.
It is important to note that this figure does not include capital improvements.
For example, major improvements such as extensions, new kitchens and many energy-efficiency upgrades are treated differently for tax purposes and are therefore not included within the repairs and maintenance total.
The figures also only reflect expenses that landlords actually declared on their tax returns.
Finance Costs Now Exceed Repairs
While repairs can represent a substantial cost, the largest category of landlord expenses is now related to residential finance.
Landlords declared £12.82 billion in residential finance costs during 2024-25. This accounted for around 37% of all expenses reported and was almost twice the amount claimed for repairs and maintenance.
Approximately 1.15 million landlords reported finance costs, with an average of £11,148 per landlord.
However, the way these costs are treated for tax purposes has changed significantly.
Since April 2020, the Section 24 rules have prevented individual landlords from deducting residential finance costs directly when calculating their taxable rental profits.
Instead, landlords receive a tax credit worth 20% of their finance costs.
Section 24 Creates a Bigger Impact for Higher-Rate Taxpayers
The impact of this system depends on the landlord’s tax position.
For a basic-rate taxpayer, the overall effect can be broadly similar to the previous system. Higher-rate taxpayers, however, can be left with a significantly larger tax bill.
Using the average finance cost of £11,148 as an example, a landlord would receive around £2,230 in tax relief through the 20% reducer.
Under the previous system of full deductibility, the same finance cost could have reduced taxable income by £11,148. At a 40% tax rate, this would have represented approximately £4,459 in tax savings.
This creates a difference of around £2,230 a year for a higher-rate taxpayer with the average level of finance costs.
Companies are treated differently under the current rules and can continue to deduct qualifying finance costs in full.
This means the tax treatment can vary depending on whether a property is owned personally or through a company, even where the underlying property and rental activity are otherwise identical.
More Regulation Could Add to Landlord Costs
The increase in expenses comes at a time when landlords are also facing additional regulatory requirements.
Private rented properties in England will need to meet the future energy efficiency requirements, with properties expected to reach an Energy Performance Certificate (EPC) rating of C or have a valid exemption by 1 October 2030.
The sector is also expected to be affected by the future Decent Homes Standard, which is due to apply to private rented housing from 2035.
Meeting these requirements could involve additional spending for landlords, particularly where properties require improvements to insulation, heating systems or other aspects of the building.
Government support is currently available in some circumstances, although the funding arrangements can vary. Under the current approach referenced in the analysis, grant support can cover one property per landlord in full, while landlords are expected to contribute 50% towards eligible costs for additional properties.
Growing Pressure on the Private Rental Sector
The latest figures raise questions about how much additional cost the private rented sector can absorb.
Landlords are already dealing with higher mortgage and finance costs, maintenance bills and increasing regulatory responsibilities. At the same time, rental income has not increased at the same pace as expenses over the period analysed.
Phil Shelley, chair of Hello Neighbour, argued that the current direction of policy could create difficulties for landlords trying to keep properties compliant.
The organisation believes landlords should have greater support to meet new housing standards, rather than policies focusing primarily on enforcement against those who fail to comply.
For landlords, the figures underline the importance of understanding the full cost of running a rental property. Looking only at rental income can give a misleading impression of profitability when mortgage costs, repairs, maintenance, insurance, compliance and other expenses are taken into account.
What Does This Mean for Landlords?
The HMRC data provides a clear indication that the economics of private renting have changed.
Over the five years examined, declared landlord expenses increased more than twice as quickly as rental income. Finance costs now represent the largest category of reported expenses, while landlords are also preparing for further regulatory changes.
For property investors, this makes cash-flow planning increasingly important.
Landlords considering buying additional properties may need to look beyond potential rental yields and assess mortgage costs, maintenance requirements, tax treatment and future compliance spending.
The latest figures also highlight why the structure through which a property is owned can have a significant impact on the tax position, particularly where borrowing is involved.
With costs continuing to rise faster than rental income, landlords may face increasing pressure to ensure their portfolios remain financially sustainable while meeting the standards expected of the private rented sector.
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