As a seafarer benefiting from good earnings and tax relief, you might be thinking about investing in UK property. Smart move, but property income follows completely different tax rules to your wages at sea and getting it wrong can be costly.
Understanding whether a cost counts as a repair or capital expenditure is key to reporting your income correctly.
The basic principle is that expenditure spent repairing your rental property can be claimed against income, where capital expenditure is claimed when you sell.
There are different rules depending on whether you let a residential rental property or operate a Furnished Holiday Let (FHL), making the distinction even more important.
Furnished Holiday Let vs Residential Let: What Is the Difference?
When investing in property, it’s essential to understand the difference between a Furnished Holiday Let (FHL) and a Residential Let.
Although both generate rental income, they are treated very differently for tax and practical purposes in the UK.
What Is a Furnished Holiday Let?
A Furnished Holiday Let is a property rented out on a short-term basis to holidaymakers. It must be:
- Fully furnished.
- The property must be available for commercial holiday letting to the public for at least 210 days per year. Note, days your friends or family use the property for free or reduced rate do not count.
- Let to paying customers for at least 105 days per year.
- The property cannot be occupied for long-term stays (over 31 consecutive days) for more than 155 days in total during the year.
- The property must be let with the intention of making a profit
- The property must be in the UK or EEA.
VAT heads-up if you own multiple FHL properties – If you own several furnished holiday lets in the UK and your combined income exceeds £90,000 in any rolling 12-month period, you must register for VAT. You’ll then charge 20% VAT on future bookings and submit returns four times a year, but you can reclaim VAT on eligible business expenses. This typically only applies to seafarers with established property portfolios, not first-time landlords.
What Is a Residential Let?
A Residential Let is a property rented on a long-term basis, usually as a tenant’s main home. These properties are commonly let under an Assured Shorthold Tenancy (AST) and are taxed under standard property income rules.
A residential let can be defined as a property that:
- Is let as somebodies home.
- Is typically occupied under a long-term agreement.
- May be furnished or unfurnished.
Expenditure – Repairs or Capital?
If you have just purchased a rental property and need to buy furniture, make repairs or complete a major refit, it’s important to understand what you can and can’t claim for.
There are two types of expenditure to be aware of, Capital and Repair costs.
Capital Expenditure
Capital expenditure is money spent to improve or upgrade a property beyond its original condition. These costs cannot usually be deducted from rental income in the year they are incurred.
Instead, they are typically added to the property’s base cost and may reduce Capital Gains Tax (CGT) when the property is sold.
You can’t claim money spent on capital improvements to your property on your annual self-assessment tax return.
Common Examples of Capital Expenditure
- Building an extension, or any building works.
- Replacing the roof (not replacing a few tiles, this would be considered maintenance).
- Replacing a bathroom or kitchen.
- Replacing the heating system, boiler.
- Upgrading single glazing to double glazing if the property never had double glazing.
Repair costs
A repair restores an existing asset to its original condition without improving it. For most landlords, repair costs are fully deductible against rental income in the year they are incurred, reducing your income tax bill for the tax year the repair was made.
Common examples of repairs would be:
- Replacing broken roof tiles.
- Fixing a boiler.
- Repainting walls due to wear and tear.
- Replacing like-for-like kitchen units.
- Repairing gutters or windows.
- Decorating costs (assuming you’re maintaining the property to its existing condition).
- Replacing carpets with similar quality flooring.
The key test is whether the repair work maintains the property’s existing standard.
For example, if you replaced a broken oven which is now obsolete, with a modern replacement, then this would be classed as a repair as the old oven is no longer available.
However, the replacement must serve the same function and can’t be a significant upgrade in quality and performance. If the replacement oven is an upgrade, then it would be considered as capital expenditure.
Scenario: You’ve just bought a cottage in Cornwall to let out. It needs work. Here’s what you can claim immediately, and what you can’t:
Can claim as repairs this year:
The bathroom tiles are cracked → replacing like-for-like: repair
Kitchen cupboard doors are falling off → new doors in same style: repair
Boiler is 20 years old and failing → modern replacement: repair (old model no longer available)
Can’t claim until you sell:
Bathroom is tired but functional → full refit with new suite: capital
Kitchen works fine → ripping it out for modern units: capital
Property has old storage heaters → installing central heating: capital
The line between repairs and improvements isn’t always clear-cut. When in doubt, ask yourself: am I fixing something that’s broken, or am I upgrading to something better than before? If it’s the latter, it’s usually capital expenditure. For borderline cases – and there will be some – check PIM2025 or speak to a tax adviser
Self-Assessment: What You Need to Report
As an individual landlord, you will need to complete a self-assessment each year to report your income, expenses, and therefore your profit. Whether you actually pay tax on that profit depends on your overall income and personal tax allowances – but the reporting requirement applies regardless.
Should You Buy Personally or Through a Limited Company?
When buying a property in the UK, there are important differences between purchasing personally and through a limited company, particularly around tax, costs, and long-term planning.
Buying in your own name
Most first-time landlords buy personally. It’s straightforward – fewer forms, lower costs, and you report everything through your annual self-assessment.
The rental profit gets added to your other income and taxed accordingly. Here’s the catch though: since 2020, you can’t deduct mortgage interest from your rental income anymore. Instead, HMRC gives you a 20% tax credit on the interest you’ve paid.
For basic-rate taxpayers, that’s fine. For higher-rate taxpayers earning over £50,270, it’s less attractive – you’re paying 40% tax on rental profit but only getting 20% relief on mortgage costs.
When you eventually sell, any profit is subject to Capital Gains Tax (though you do get an annual CGT allowance before tax kicks in).
Best for: Basic-rate taxpayers, single property investments, or anyone wanting to keep things simple.
Buying through a limited company
A company structure means the property is owned by the business, not you personally. The company pays Corporation Tax (currently 19-25%) on rental profits instead of Income Tax.
The big advantage? Mortgage interest is fully deductible from rental income. For higher-rate taxpayers with significant mortgage costs, this can mean substantial tax savings.
The downsides are real though:
- Higher mortgage rates – lenders typically charge 0.5-1% more for limited company buy-to-lets and require bigger deposits
- More admin – annual accounts, Companies House filings, corporation tax returns
- Getting money out is taxed again – when you take profits as dividends or salary, you’ll pay personal tax on top of the corporation tax already paid
- Stamp Duty surcharge – companies usually pay an extra 3% on top of standard rates
When you sell, the company pays Corporation Tax on the gain rather than you paying Capital Gains Tax personally. Whether that’s better depends on tax rates at the time and your plans for the money.
Best for: Higher-rate taxpayers planning to build a property portfolio, or those wanting to reinvest profits rather than draw income immediately.
The Boring But Important Bits
Whichever route you choose, there’s admin involved. Personal ownership means self-assessment returns. Company ownership means statutory accounts filed with HMRC and Companies House, plus various director obligations throughout the year.
And in both cases, Stamp Duty Land Tax applies when you buy – with that 3% surcharge for additional properties hitting companies particularly hard.
The best option depends on your tax position, future plans, and whether you intend to grow a property portfolio, so taking advice from a tax adviser or HM Revenue & Customs guidance is strongly recommended.
Need help with your seafarer tax return?
Property income adds complexity to your self-assessment, especially when combined with seafarer tax relief claims. Our tax advisers specialise in maritime tax returns and can ensure you’re claiming everything you’re entitled to while staying compliant.
