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Are Home Improvements Tax Deductible?

are home improvements tax deductible
As inflation reaches ever greater heights, the question ‘are home improvements tax deductible?’ has never been more topical. Conflicting claims abound, with requirements changing as regularly as British weather. We explore the testy waters of tax-deduction, enabling you to capitalise on your efforts, and claw back some cash in the process…

Repairs Or Improvements?

When it comes to property renovation, projects fall into one of two categories: repairs or improvements.

The term repairs are used for adjustments that are mainly concerned with maintenance, rather than enhancement.

In comparison, work that involves substantial more outlay is referred to as an improvement.

Although both categories overlap, the predominant deciding factor is the purpose of the project. If the changes are likely to increase the property resale value significantly, then HMRC classes them as ‘capital improvements.’

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It appears that repairs are considered to revolve around returning objects to their original state, rather than enhancing them for the purpose of profit...

Examples Of Tax Deductible Repairs

Although there are no hard and fast rules with regards to what constitutes a tax-deductible repair, the following list gives a clear indication of developments that fall within the remit of repairs:

  • Exterior and Interior Painting and Decorating
  • Stone Cleaning
  • Damp and Rot Treatment
  • Replacing Roof Slates, Flashing and Guttering
  • Mending Broken Windows, Doors, Furniture and Appliances

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Capital expenditure, however, concerns itself with refurbishment projects as a whole. Although such projects could be considered to have preservation in mind, their overriding aim is to increase property value overall. As a result, HMRC deems such developments capital expenditure instead

Revenue and Capital Expenditure: What’s the Difference?

Revenue and capital expenditure revolve around how the income invested in projects influences their overall value. Let’s take a look at both forms of expenditure in a little more detail:

Revenue Expenditure

Revenue expenditure frequently refers to repairs, with income used to restore assets to their original condition. In most cases, it refers to individual items, with preservation as the purpose.

Capital Expenditure

Capital expenditure, however, concerns itself with refurbishment projects as a whole. Although such projects could be considered to have preservation in mind, their overriding aim is to increase property value overall. As a result, HMRC deems such developments capital expenditure instead.

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Integral features include all the internal systems needed to keep a home functioning effectively. They include plumbing, heating and electrics. All of these items qualify for capital allowances, although if the outlay amounts to more than half the cost of replacing the entire feature within a twelve month period, it’s considered a capital improvement instead

The ‘Like For Like’ Test

In terms of tax deductions for home improvements, the ‘like for like’ test can provide some much-needed clarity.

Put simply, if the replacement is of a similar standard to the current one, and is simply a modern equivalent of the original, it will still be considered a repair, and therefore tax deductible.

On the other hand, tax deductions are not applicable if you replace an asset in its entirety, or the replacement is of a significantly higher standard than the original.

The Lowdown on Integral Features

Integral features include all the internal systems needed to keep a home functioning effectively. They include plumbing, heating and electrics. All of these items qualify for capital allowances, although if the outlay amounts to more than half the cost of replacing the entire feature within a twelve month period, it’s considered a capital improvement instead.

To prevent this problem, consider staggering any proposed improvements over a longer period of time. This can also help you to manage your budget more effectively as well.

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Any expenses incurred before letting out a property are all tax-deductible-as long as they were incurred within seven years before your rental venture commenced

Tax Deductions: Key Considerations for Landlords

As inflation continues, household finances are feeling the pinch, prompting us to seek out strategies for acquiring additional income.

For those with spare bedrooms, renting out the extra space makes sound financial sense, offering an obvious solution. What’s not always so apparent, however, is that profits can be furthered by the following tax deductions:

Expenses Incurred Before Letting Out A Property

Any expenses incurred before letting out a property are all tax-deductible-as long as they were incurred within seven years before your rental venture commenced.

The purpose must be specifically related to preparing your property for rental.

If the expenses appear extortionate in relation to an average estimate, then you may need to provide further justification of their legitimacy to satisfy HMRC’s criteria for tax deductions.

tax deductions on home improvements landlords

To claim unpaid rent as a business expense, the debt must have been left unpaid for at least six months. In addition to this, landlords are also required to provide adequate evidence of attempts to claim any withstanding debt on their own accord

Unpaid Rent From Tenants

Unpaid rent is the bane of many a landlord’s life. Disputes are common, especially if tenants leave the place in a state of disarray, with landlords left to foot the majority of the bill.

To claim unpaid rent as a business expense, the debt must have been left unpaid for at least six months. In addition to this, landlords are also required to provide adequate evidence of attempts to claim any withstanding debt on their own accord.

Not the easiest task, it has to be said, but one well worth pursuing to ensure you receive all the tax deductions you’re entitled to.

Unfortunately, this still leaves the question of what’s worth claiming largely unanswered. Time equals money, with landlords forced to weigh up whether the pursuit of minor expenditures is really worth the resultant gains-gains which are unfortunately not guaranteed.

Wear and Tear Renewals Allowance

Minor repairs and maintenance are tax deductible, although major renovations, such as entire room refurbishments, are not.

The key determiner is whether the proposed alterations will provide additional value.

Minor repairs are attempted to ensure the property remains habitable for occupants.

In contrast, major renovations achieve the same ends but are also highly likely to increase the resale value of a property in the process. Consequently, they would be considered a capital improvement.

 
 
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The Ultimate Solution? Itemise Your Expenditure!

Still left scratching your head over the best way forward with your project? Itemising your expenditure offers a salient solution.

The majority of home improvements require a mix of repairs and improvements. Although it’s harder to justify improvements for tax deductions, this needn’t prevent you from claiming tax relief from the required repairs.

Like for like replacements are still considered repairs, even if you’re upgrading to a more modern material.

The only exceptions are in cases where additional of higher standard materials are appropriated. In these instances, the renovations would firmly fall into the capital improvements category.