Tax laws: As a Landlord, what can you claim for?

We understand that it can be confusing for landlords when determining which repair works and maintenance they can reclaim their tax on which is why we ve put together this helpful note. The cost of repairs to a newly-purchased property can sometimes be claimed if certain conditions are met. The key distinction to be made is between capital expenditure and routine maintenance.

Capital expenditure is the cost of acquiring the property and making it fit for use as a let. Routine maintenance is any expenditure beyond that, even if it is extensive.

How to distinguish between capital expenditure and routine maintenance

Was the property fit to let before the repairs were carried out? If yes, then the repairs are an allowable expense against the rent once the property is let.

Interestingly, the law surrounding this issue came about from two unexpected sources: a cinema and a ship.

Odeon Cinemas claimed the cost of repairs to various cinemas they had refurbished after the war. However, the Court felt that the refurbishments made were not to make the cinema useable, but were actually routine maintenance works. They were also satisfied that the price Odeon paid for the cinemas was not significantly lower because of the condition they were in.

Therefore the Odeon cinemas repairs were judged to be allowable expenses.

The second case involving the ship was not favourable to the ship owners. Upon purchase, the ship was not deemed seaworthy. When the ship was repaired and the ship-owners went to court, the Court pointed out that the ship was clearly not fit for use, and the repairs were necessary before it could be used or sold.

Therefore the cost of the repairs was capital expenditure, included as part of the cost of the purchase of the ship, and subsequently not allowable as an expense.

The distinction between capital expenditure and repairs applies to any work carried out on a property, at any stage in its ownership. There is no difference regarding work carried out before the first letting. Expenditure on normal maintenance is an allowable expense.

So before you buy a property to let, think about this is it a cinema, or a ship? If the property is like a cinema, that just needs a quick clean, then that s fine. But if it s a ship, can you afford to make it seaworthy?

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