A question often asked by landlords is ‘I have just bought a new property and have had to fix it up – is this income tax deductible?’
As may be expected, it depends. The simple approach would be to assume that pre letting repairs etc., because they presumably increase the value of the property (the property cost you less because the repairs needed to be done), are effectively improvements and therefore ‘capital’ and not claimable against rents.
The factors that HMRC look at in determining whether the expenditure is capital and therefore not deductible against rents are:-
- If the property was not in fit state for use before the repairs had been carried out;
- Where the price paid for the property was ‘substantially’ reduced because of its dilapidated state; and
Where there is an agreement committing the landlord to reinstate the property to a good state of repair
If the above factors are present then HMRC may well view the expenditure as capital.
To help therefore with obtaining a deduction against rents it is important to demonstrate that the property was useable or in use prior to works being carried out and that market value was paid for the property.