Which tax relief?

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    Which tax relief?

    I have a solid wall house. The outer rendering started to come away in large chunks. Rather than repair I decided to have external wall insulation fitted. Should the cost be claimed as an expense or against capital gains.

    Tia.

    #2
    I'd say that that was a repair, as it simply restores the condition and doesn't otherwise change the value of the property (other than as a result of correcting a new defect).
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      I hope it is non-combustible insulation.

      Comment


        #4
        External wall insulation will be viewed as an upgrade by HMRC and is therefore a Capital expense.

        https://www.gov.uk/green-taxes-and-r...fficient-items

        Comment


          #5
          Whichever has the greater benefit for you.

          Comment


            #6
            I'm normally first to advocate treatment as a revenue expense, but given HMRC attitude above, and the hoohaa in the press about how energy efficiency isn't tax deductable as a result, its a capital expense imo. You're literally affecting and upgrading the fabric of the building.


            ​​​​​

            Comment


              #7
              Originally posted by Section20z View Post
              Whichever has the greater benefit for you.
              No - its not a choice, you should abide by HMRC's rules.

              Comment


                #8
                Originally posted by jpucng62 View Post
                No - its not a choice, you should abide by HMRC's rules.
                I agree, but external wall insulation would have no effect on the value of a property, other than removing the negative effect of the chunks that have started to fall off.
                It's hard to see why that expense would be capital in a rental property.

                The insulation just happens to be part of the repair solution.
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  It doesn’t matter what we think the HMRC rules say it is capital.

                  Comment


                    #10
                    Originally posted by jpucng62 View Post
                    It doesn’t matter what we think the HMRC rules say it is capital.
                    Where do they say that?
                    The link you provided relates to capital reliefs, which is something else entirely.
                    Businesses that claim capital reliefs for environmental work don’t fall into the revenue/capital split regime.
                    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                    Comment


                      #11
                      Originally posted by jpkeates View Post
                      Where do they say that?
                      The link you provided relates to capital reliefs, which is something else entirely.
                      Businesses that claim capital reliefs for environmental work don’t fall into the revenue/capital split regime.
                      Sorry - think I posted the wrong this link. This link :

                      https://www.gov.uk/guidance/income-t...income#cap-exp

                      Includes this statement:

                      Screenshot 2021-09-07 at 11.06.03.png

                      Insulation would count as 'adding something that was not there before' or 'alter improve or upgrade something that was existing.

                      I previously found something that expressly said 'insulation' but I can't find it at present. However it seems pretty clear to me that EWI would be an upgrade and therefore a capital expense. To claim against rental income your could only repair or replace the render.

                      Comment


                        #12
                        Originally posted by jpucng62 View Post
                        Insulation would count as 'adding something that was not there before' or 'alter improve or upgrade something that was existing.

                        I previously found something that expressly said 'insulation' but I can't find it at present. However it seems pretty clear to me that EWI would be an upgrade and therefore a capital expense. To claim against rental income your could only repair or replace the render.
                        For there to be a capital element to an expense, it has to affect the value of the property in a material way.
                        In their income manuals, HMRC accept that in most cases replacing something with a newer more modern something will bring about an increase in value - replacing a 20 year old boiler with new one is going to be an improvement or upgrade, but it's allowable as an expense against income.

                        Replacing a bathroom suite would be another example - that's not a capital expense, but the new suite might be much nicer (particularly if the one being replaced was in avocado).
                        But installing a complete wet room in place of a bath, for example, would either be capital or there might even be an element of both (because if the room starts off with a toilet and ends up with a newer one, that's probably maintenance).

                        The new room would make the property worth more than it was worth before - if you had a choice between the property with the new bathroom and the identical property next door without, you'd choose the one with the new bathroom and probably pay a bit more.

                        In this case, I'd argue someone's simply replacing the outer covering of the house with a new outer covering, albeit one that is better than the one that was there, but that it won't affect the value of the property in any material way.
                        If you wanted to by hyper-cautious, you could split the cost into replacement and improvement, but I can't imagine anyone paying any more for a house because it had external insulation.
                        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                        Comment


                          #13
                          Originally posted by jpkeates View Post
                          In this case, I'd argue someone's simply replacing the outer covering of the house with a new outer covering, albeit one that is better than the one that was there, but that it won't affect the value of the property in any material way.
                          If you wanted to by hyper-cautious, you could split the cost into replacement and improvement, but I can't imagine anyone paying any more for a house because it had external insulation.
                          I think you are wrong on this. We have just paid for my daughter's house to have the render on the back wall replaced and painted - £1500. If a rental this would be allowable against rent. We looked into EWI when the green Homes grant was announced cost approx £8-10,000. There is no comparison - this is an upgrade and I believe it would increase the value of the property slightly.

                          HMRC rules on kitchens clearly say like for like but not improvement - so you can replace your kitchen but not upgrade it - this is the same.

                          The original page I am remembering even included loft insulation as a capital expense - that definitely doesn't increase the value of the house but it was quite specfic that if old insulation got wet and was replaced - set against income; if new insulation being added - set against capital.

                          There have also been reports in the press about the inability of LLs to set Green Improvements against rental income being a barrier to upgrades:

                          https://www.landlordtoday.co.uk/brea...s-a-pipedream-

                          Relevant paragraph:

                          Screenshot 2021-09-07 at 12.48.16.png

                          Comment


                            #14
                            If the insulation increases the value of the property there's definitely an element of capital spend.

                            Anything that increases the EPC score of your property is likely to be a capital expense - even though pretty much no one gives them any thought at all.
                            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                            Comment

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