Are HMO & Selective Licence Fees Tax Deductible? (2026/27)
Last updated 24 June 2026 · 7 min read · By the LandlordTaxAi Editorial Team
The short answer
HMO, selective and additional licensing fees are normally treated as allowable revenue expenses — they’re a recurring regulatory cost of running your lettings business, incurred wholly and exclusively for it. You can usually deduct the fee from your rental income, either when paid (cash basis) or spread over the licence term.
Licensing has spread far beyond large HMOs — many councils now run selective or additional licensing schemes that catch ordinary buy-to-lets, with fees running into hundreds or thousands of pounds. The good news is that these are a genuine cost of doing business, so they generally reduce your tax.
This guide explains how licence fees are treated for 2026/27 and the one nuance about timing. For the full list of deductions, see allowable expenses for landlords.
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Rental Profit Calculator (with Licence Fees)
Add your HMO or selective licence fee and other costs to see your taxable rental profit for 2026/27.
Result
- Taxable profit (rent − expenses)
- £11,200
- Income Tax at 20%
- £2,240
- Less mortgage interest credit (20%)
- − £1,000
- Tax due on this property
- £1,240
- Income after tax
- £9,960
Licence fees are generally allowable revenue expenses. Cash basis deducts when paid. Estimate only.
Why licence fees are generally deductible
The test for any rental expense is whether it’s wholly and exclusively for the purposes of the letting business. A mandatory licence to let a property legally clearly meets that test — you can’t run the let without it.
Because licences are a regular, recurring regulatory cost (they typically last up to five years and must be renewed), they’re treated as revenue rather than capital — unlike the one-off costs of acquiring the property itself.
- Mandatory HMO licences (larger HMOs) — allowable
- Additional HMO licensing (council-extended schemes) — allowable
- Selective licensing for ordinary rentals in designated areas — allowable
- Associated costs to meet licence conditions, where they’re repairs — allowable
Costs to improve a property to meet licence standards (e.g. installing something new rather than repairing) can be capital — deductible against CGT on sale, not rental income. Separate genuine repairs from improvements.
When to claim — and whether to spread it
Licence fees are usually paid as a lump sum covering several years, which raises a timing question that depends on your accounting basis.
On the cash basis (the default for most landlords under £150,000 gross rent), you deduct the fee in the year you pay it. On the accruals basis, it’s more appropriate to spread the cost over the licence period it covers, matching the expense to the years that benefit.
| Accounting basis | How to claim a multi-year licence fee |
|---|---|
| Cash basis (default under £150k) | Deduct in full in the year you pay it |
| Accruals basis | Spread over the licence term (e.g. 5 years) |
HMRC’s manuals don’t name licence fees specifically, so treatment follows the general revenue/capital and timing rules. If in doubt on a large fee, a quick word with an accountant settles it.
Recording licence fees under MTD
From April 2026, over-£50,000 landlords keep digital records and file quarterly. Licence fees go in your professional/other expenses category, supported by the council’s receipt.
If you’re on the cash basis, simply record the fee in the quarter you pay it. Keep the licence and payment evidence as digital records in case HMRC asks.
Claim your licensing costs in full
LandlordTaxAi categorises HMO and selective licence fees correctly and applies your accounting basis — so a big licensing bill always reduces your tax the right way.
See how it worksA worked example
Dev pays a £900 selective licence fee covering five years for his rental in 2026/27. He’s a basic-rate taxpayer on the cash basis.
| Licence fee paid | £900 |
| Accounting basis | Cash basis |
| Deducted in 2026/27 | £900 in full |
| Tax saved at 20% | £180 |
| If on accruals basis instead | £180/year over 5 years |
On the cash basis Dev deducts the whole £900 now; an accruals-basis landlord would spread it at £180 a year across the five-year licence.
Frequently asked questions
Are HMO licence fees tax deductible?
Yes, generally. They’re a recurring regulatory cost incurred wholly and exclusively for the lettings business, so they’re treated as an allowable revenue expense.
Are selective licensing fees deductible too?
Yes. Selective and additional licensing fees follow the same principle as HMO fees — a regular cost of letting legally, so generally deductible.
Should I spread the fee over the licence term?
On the cash basis, deduct it when paid. On the accruals basis, spread it over the licence period (often five years).
Are costs to meet licence conditions deductible?
Repairs to meet conditions are deductible; improvements (installing something new) are capital and reduce your CGT instead.
Is the first licence treated differently?
Licence fees are a regulatory cost, not a cost of acquiring the property, so they’re normally revenue — unlike the capital costs of buying the property.
Where do licence fees go under MTD?
In your professional/other expenses category, recorded in the quarter you pay them (cash basis), with the council receipt kept as a digital record.
Written and reviewed by the LandlordTaxAi Editorial Team. Our guides are reviewed against current HMRC guidance and updated when the rules change. Operated by LandlordTaxAi, United Kingdom. Follow us on LinkedIn.
Last reviewed: 24 June 2026 · Researched against primary UK sources for the 2026/27 tax year: https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income; https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2120. This article is informational only and does not constitute tax advice. Check the latest details on GOV.UK or with a qualified accountant.