Is service charges
tax deductible?

Yes. Landlords can deduct ground rents and service charges on a let property (GOV.UK), and a sole trader can deduct service charges on business premises as a premises running cost (GOV.UK). Charges that fund improvements to the building are capital rather than running costs.

Service charges are the price of owning a leasehold flat or occupying managed premises. For a landlord letting a leasehold flat, they are a normal, allowable cost of the letting. For a trader in a unit or serviced office, they are a premises cost. The main question is what the charge pays for, because repairs and running costs are allowable and improvements are not.

Is service charges tax deductible?

The HMRC rule

Landlords can deduct costs wholly and exclusively for the letting: repairs, water rates, council tax, gas and electricity, insurance, letting agent and management fees, ground rents, service charges and accountancy. The rule comes from Work out your rental income when you let property, Office, property and equipment.

GOV.UK lists rents (if you are sub-letting), ground rents and service charges among the expenses a landlord can deduct (landlords). For sole traders, service charges on business premises are part of the rent, rates, power and insurance costs that GOV.UK allows (office, property and equipment). Improvements and enhancements to a property are capital expenditure and not allowable against rental or trading income (landlords).

When you can claim it

• Service charges and ground rent on a leasehold flat you let.
• Service charges on a shop, unit or serviced office used for the business.
• Contributions to repairs and maintenance of common parts.
• Building insurance, cleaning and management costs included in the charge.

When you cannot

• Contributions that fund improvements, such as adding a lift or extending the building.
• Service charges on your own home, beyond a working-from-home share.
• Charges relating to a period before you started letting or trading.
• Penalties or interest for late payment of service charges.

What to claim instead

When a service charge demand includes major works, ask the managing agent what the works are. Repairs and like-for-like replacement are allowable when the landlord or leaseholder pays them; improvements are capital, which may count towards the cost of the property for Capital Gains Tax.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is a running cost, so on the cash basis it counts when you pay it and on traditional accounting when you incur it. Nothing about it needs spreading over later years.
4. Is there a specific rule? For service charges, the deciding rule is running costs of a let property: landlords can deduct costs wholly and exclusively for the letting: repairs, water rates, council tax, gas and electricity, insurance, letting agent and management fees, ground rents, service charges and accountancy.

Worked example: a leasehold flat

A landlord lets a leasehold flat. In the year she pays £1,800 of service charges, including building insurance and cleaning, and £250 of ground rent. Both are allowable: £2,050. The next year she pays a £3,000 contribution to replace the communal roof like for like, which is a repair and allowable, and £1,500 towards a new lift, which is an improvement and not.

Repairs or improvements

A repair restores something to its previous condition; an improvement adds something new or significantly better. Replacing a communal roof, redecorating stairwells and fixing the entry system are repairs. Adding a lift, a new storey or new facilities are improvements. Replacing with the nearest modern equivalent, such as double glazing for single glazing, is still usually a repair.

Reserve and sinking funds

Many buildings collect contributions to a reserve fund for future major works. How and when those contributions are deductible can depend on the terms of the lease and whether the money is held on trust. If your charges include large reserve contributions, check the lease and the managing agent's accounts, and ask your accountant how to treat them.

Service charges for business premises

A trader in a managed building often pays rent plus a service charge covering security, cleaning, heating of common areas and insurance. The service charge is a premises running cost, allowable in full in box 21. If it includes a recharge of business rates or utilities, those are allowable in the same box.

Ground rent

Ground rent is the rent a leaseholder pays to the freeholder. For a let leasehold flat it is allowable, alongside the service charge. For your own home, it is personal, but a working-from-home share could arguably be included with rent-like costs; most home workers leave it out because it is small.

Where it goes

Landlords put service charges and ground rent in box 24 of the UK property pages. Sole traders put service charges on business premises in box 21. In Making Tax Digital updates, both are premises running costs in the matching category.

If you are a landlord

Landlords of leasehold flats deduct service charges and ground rent as running costs (GOV.UK). Keep each demand, because they often split insurance, repairs and reserve contributions, and the split can matter for major works.

Where it goes on your return and in MTD

On the self-employment pages of your return, the claimable part of service charges belongs in rent, rates, power and insurance costs (SA103F box 21). The same category is used in Making Tax Digital quarterly updates, so recording it in the right place once keeps both returns consistent.

For a landlord, it belongs in rent, rates, insurance and ground rents (property) (SA105 box 24 on the UK property pages), and in the matching category of a Making Tax Digital property update.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

The accounting basis changes when a cost counts. On the cash basis, the default for sole traders since 2024/25, it counts when you pay it; on traditional accounting, when you incur it, with things you keep claimed through capital allowances.

How much an allowable cost saves

An allowable expense does not come back to you in full: it reduces your profit, so it saves tax at your marginal rate. For a sole trader in England, Wales or Northern Ireland that is 26p in the pound at the basic rate (20% Income Tax plus 6% Class 4 National Insurance) and 42p at the higher rate. The sole trader tax calculator works out the figure for your own profit.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep mortgage statements showing the interest and capital split, insurance schedules, service charge demands and invoices, and completion statements for any purchase. For a home also used for business, keep the calculation of the business share. Records must be kept for at least five years after the 31 January deadline for the tax year.

If Making Tax Digital for Income Tax applies to you (qualifying income over £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028), the records must be digital, and each quarter's costs go into a quarterly update. Check your date with the MTD requirement checker.

Common mistakes

• Deducting contributions to building improvements as running costs.
• Claiming late-payment penalties on service charges.
• Claiming service charges on your own home.

Related expenses

This item sits in the rent, rates, power and insurance costs category, alongside business rates, council Tax, garden office, home and landlord insurance, mortgage interest, rent, solar panels and stamp Duty. The A to Z of expenses answers the same question for every other cost.

If you record your costs in TapTax, each one lands in the HMRC category it belongs to, with its receipt attached, so your quarterly updates and year-end return use the same figures.