Capital Expenditure or repair?

[Valley_Commando]

Hello all

I've spent days trying to research if the cost I've incurred from two properties I've refurbished and rented this year fall under Capital expenditure or repair. HMRC, google, Landlord zone etc...

The two properties I've bought have been habitable on purchase however BMW. I have spent money on refurbishing to a standard which has now improved the valuation of the properties. Nothing new has been added - no extensions etc, however most things have been replaced like for like. As an example, bathrooms and kitchens have been replaced, new central heating systems, rewiring, plastering and decoration, laminate flooring, tiling, carpeting and double glazing.

I'm led to believe as the properties were bought then refurbished before letting out, all the work falls into capital expenditure rather than repair?

Would this be correct?

Cheers!

[JK0]

Others will confirm, but I believe it depends on whether you had a rental/development business before you bought these places.

[Valley_Commando]

Thanks JKO. No I did not, these were my first BTL properties.

[MisterB]

buy the tax café book on reducing property taxes, lots of good examples in there, a lot of work you have undertaken would seem to fall into the income tax offset regime.

[King_Maker]

Furnished or unfurnished?

[jpkeates]

This is a wonderful grey area.

If you make changes to a property that increase its value, you are improving it, which is a capital event and therefore the cost is allowable on disposal as a capital cost.

However, some of the changes might simply be maintenance - changing a window that is in need of repair might add a much better window.
This is inevitable as time moves on and things improve - the same cost window a decade ago would probably not have been double glazed or might have a wooden frame,
now an "entry level" [!] window is probably UPVC and double glazed. This is a maintenance event and allowable against income.
Fuseboxes are likely to be "replacement", but much improved
Decorating with wallpaper replacing paint - it's an improvement and/or simply maintenance.

You would need to consider a) which tax treatment might suit you most and b) evaluate each item to see how it should be treated (imagine having to explain why you chose the treatment to a nasty person from HMRC).
The wording on estimates and invoices can be very influential (mostly they'll say things like replacing door, rather than upgrading door) and you might need to split invoices between categories (which is a bit of a pain).

Some items are not allowable either way, and this is even more "grey".
Furnishings are neither maintainable or capital - which means that laminate flooring is allowable as a "fitting", but carpet isn't.
Again, what the invoice says will probably be key - "replacing kitchen" might be more helpful than "install fridge and dishwasher".
If you securely bolt a normally free standing appliance to a wall, it might pass as a fitting.

This is a matter of art not science and a good accountant can be worth their weight in tax allowance gold.

[Valley_Commando]

Thank you all.....

The property is unfurnished (except I have supplied white goods)

I've just discovered books from the tax café and just finished reading 'Using a property company to save tax,' Reducing property taxes will be next

An idea world for me I suppose would be to allocate it all against maintenance therefore reducing tax on rental income for a while; however I guess HMRC won't see it this way!!!!

My receipts / the way I have been invoiced.......
I have paid for all materials directly with the builder being paid on a weekly basis (labour only). Not sure now if this is a good thing or bad?

I have an accountant for my electrical business but I don't think he 'specialises' in property - I'll give him a call in the new year.

Can anyone recommend a good property accountant in the South Wales area?

Cheers all
VC