Deductions for additional costs imposed by the Renters’ Rights Act - Go Figure Financial | Bookkeeping Services Manchester

olivia26264
21 hours ago
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The Renters’ Rights Act 2025 received Royal Assent on 27 October 2025. The Act is not yet in force; the first tranche of provisions come into effect on 27 December 2025 (two months from the date of Royal Assent). Some key provisions, including the abolition of section 21 evictions, an end to fixed-term tenancies, restrictions on the payment of rent in advance and rent increases limited to once a year, take effect from 1 May 2026. The remaining provisions will be brought in progressively by statutory instrument.

Nature of the Act

The Act grants additional rights to tenants and imposes further obligations and costs onto landlords.

Under the Act, landlords will be required to sign up to a new private rented sector database. Sign-up will be online, and landlords will be required to pay to register.

Landlords will also be required to comply with a Decent Homes Standard which may require them to undertake work to ensure that their property complies with the standard.

In the future, landlords may also need to ensure that their property has an EPC rating of C or above.

Tenants will have greater rights to have a pet in their property; landlords cannot reasonably refuse such requests. Although landlords can require an additional deposit to cover pet damage, this is capped at three weeks’ rent. Where the cost of pet damage exceeds this, the landlord will need to take court action to recover this and may well end up out of pocket.

Landlords also face restrictions on rent increases and reduced grounds for retaining possession of their property. No fault section 21 evictions are to be abolished, but the landlord will remain able to recover possession should they wish to sell or live in the property themselves. However, landlords will need to give four months’ notice rather than the current two. Fixed-term tenancies will be banned, and all tenancies will become periodic by default. To end bidding wars, landlords will not be able to let the property for more than the advertised rent and will not be able to accept more than one month’s rent in advance. They will not be able to increase the rent more than once a year, and must give two months’ notice of any increase, which can only be to current market rents. These provisions will potentially reduce the landlord’s earning capacity.

Landlords who fail to comply with the Act may face financial penalties.

Tax relief for additional costs

Normal rules apply to determine whether tax relief is available for additional costs imposed on landlords as a result of the Act. Costs can be deducted in computing the profits of the property rental business if they are revenue in nature and incurred wholly and exclusively for the purposes of the property rental business. Additional management fees for ensuring properties comply with the Act and registration fees for signing up to the database fall into this category.

If the landlord has to undertake work on the property to meet the decent homes or EPC standards, the relief route will depend on the extent of the work. Improvement works are capital in nature and relief would be given when calculating the capital gain or loss on the disposal of the property. If the works are in the nature of repair rather than improvement, such as redecoration, the costs can be deducted when calculating the rental profit. Where it is necessary to replace domestic items, for example, if a cat scratches a sofa, to the extent that the cost is not met by tenants’ insurance, the landlord can deduct the replacement cost of a like-for-like item.