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I have recently renovated a 3 bedroom BTL property in London. I have replaced kitchen and bathroom, rewired property, updated piping and redecorated.
I haven't added anything to the property - ie no extension or loft conversion.
*The property was inherited and then let out within a few months. 3 years later (this summer) we renovated it and then let property out again once renovation was complete.
Can someone with relevant knowledge tell me how much of the renovation costs will be tax-deductible versus rental income?
Thanks in advance!
Based on the information you've given - all of it.
(I'm assuming the replacements are 'normal' no excessive improvement factor like a solid gold bath etc)
DISCLAIMER just my personal opinion - for legal advice consult a qualified professional grown-up.
Thanks Owen for your informative reply
The starting point with repairs or improvements is two tax cases from the early 1900's. To cut a evry long story short since your property was being let prior to the work being done then this would fall under the second case of Odeon Cinema which suggests that the work is all repairs. However I note that you say that you haven't added anything to the property but have you altered the layout at all. The reason for asking is that on HMRC's web site they refer to the fact that a property is deemed to be a single asset and work changing windows, kitchen etc qualifies as repairs unless the layout of the building is changed. Accordingly if during the work you changed the layout of the kitchen or bathroom or moved doors or windows then that would make the work an improvement. Furthermore according to HMRC if you do a mixture of improvements and repairs at the same time then it all becomes improvements. At present so far as I am aware HMRC's view has not been challengede in the Courts so until it is that is where we are at. Hopefully you only did repairs and did not change the layout of the building.
I hope this helps.
Nigel Reynolds FCCA CMgr FCMI
Property Tax Specialist
Reynolds and Co
Many thanks for your informative reply.
We have not changed the layout of the flat - we have simply made 'like for like' replacements.
It seems that this is good news then on the tax front.
surely changing the layout of the building is different from changing a kitchen layout?
I had similar situation years ago and used it as capital expenditure to offset against capital gains tax. My accountant detailed the work and got HMRC to agree it was capital not repairs expenditure.
Thanks for your reply Douglas.
So you deducted your entire renovation cost from the capital gain amount on the property?
It when down as a capital expenditure as it was improvements to an old house with structural work so therefore it was capital not renovations. these costs were used towards off setting capital gains. However their is clear distinction between capital cost and renovations costs.