UK Landlord Forum / Life

Hi all,

I got my house back from the tenant from hell last year. It was left in a total state, but I always had plans to do a loft conversion and make a bigger kitchen, so I thought given the state it's in that now would be the best time to do that, so went ahead.

I know that home improvements can be offset against CGT when you sell, and that items related to renting the property can be offset on self assessment each year. There are some items that are black and white, all building costs including building regs, new kitchen, new bathrooms would be capital; items not related to the build such as work in the garden, replacing the front door that the tenant kicked in etc would be against rental. But there are some grey areas. I replaced all windows with new double glazing, new blinds everywhere, new carpets, and paid for the whole house to be decorated. Those items I would have done anyway even if I hadn't done the additional building work, but the bill of those is higher as there are now more areas that needed windows, carpets, decorating etc

Any advice on how to handle that? Do I make an estimate of what proportion was due to the building work and put that against CGT and the rest against rental on self assessment?

Thanks so much in advance!

It's a bit of an art form, rather than a science.
The HMRC guidelines for capital improvements refer to new rooms being added, rather than existing facilities being upgraded.
There's always going to be an element of improvement when someone new (and more modern) replaces something older.

So, in a sense, some of the answer depends on where you want to take the allowance - everyone usually wants the most off the rental income, until they come to sell the property, when there can be some revisiting of that decision.

Looking at the expenses you list, there's no reason a replacement kitchen couldn't be an operational expense, while making it larger would be at least an element of capital expense.
Adding a new kitchen would be almost certainly capital.
Double glazing is simply replacing one lot of windows with a more modern set (and would it make the property more valuable in any meaningful way?)

Blinds and carpets are furnishings, which have their own rules, but are almost certainly operational costs if they're replacements, but not if they're new.
Redecorating is operational. Decorating a new room might be part of construction.

If you apportion the costs, record them and your reasoning.
As long as it doesn't distort the amount of tax paid significantly overall, HMRC are unlikely to be greatly concerned, they're understaffed and are more focussed on people cheating the system than good tax paying citizens navigating a complicated system who might make an honest mistake.

Quote from: jpkeates on July 25, 2022, 08:08:09 AMHMRC are unlikely to be greatly concerned, they're understaffed and are more focussed on people cheating the system than good tax paying citizens navigating a complicated system who might make an honest mistake.

This is an excellent, and true, sentence. Small-fry Landlords do not need to be especially anxious over self-assessment tax. Even when the system warns you (in red) that expenses are greater than whatever heuristic they might use... you can just plough on through and submit. I've been doing it years - paying a fair whack (but not penny-perfect I suspect) and I think as long as money is coming in, they don't fret over things too much. I think it's almost like you set your own level... if you've been paying about £2,000 per year for the last 5 years and then suddenly end up paying £200 without documented reason, it might flag up something on their system.

But you can bet your bottom Dollar their systems are pretty crap too. Although they seem to be getting smarter (more intrusive, more linked to other sources).