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Published 9 September 2019
The concepts of “repairs” and “improvements” are treated differently for tax purposes and so it is important that property owners take this into account.
HMRC define repairs as “the restoration of an asset by replacing subsidiary parts of the whole asset”. Put plainly, this amounts to what is required to merely preserve or maintain an asset. An obvious example is the cost of patching a leaking or damaged roof. Further steps than this, such as taking the roof off and building another storey, would not be repairs and would instead be classed as an improvement.
An improvement, on the other hand, is generally seen as a permanent or long-term enhancement to an asset. This also includes replacing the asset outright. Examples of improvements include installing brand new carpet or adding an extra room.
A repair is usually a revenue expense which is generally immediately allowable as a deduction from property income for tax purposes.
An improvement on the other hand, is generally seen as a capital expenditure which is not immediately deductible in calculating profits, but it may qualify for capital allowances (and might be immediately deductible if within the annual investment allowance).
This matters because it impacts on when the property owner benefits from the respective tax relief. Relief for capital expenditure incurred by making improvements either qualifies for capital allowances (allowing relief over time against profits for fixtures and fittings) or when the property is sold. However, revenue expense incurred by making repairs can be claimed in the same year of that expense.
Here are some common examples, to assist property owners with identifying what action amounts to repair and what amounts to improvements:
Repairing a crack in a foundation
Making a structural addition (e.g. extra rooms – deductible on building sale)
Replacing damaged plumbing pipe
Replacing all existing plumbing (qualifying for capital allowances)
Replacing a broken section of partition wall
Renovating the whole kitchen (most likely qualifying for capital allowances in the main)
Repairing broken appliances
Replacing various appliances (such as oven, fridge and washing machine) (qualifying for capital allowances)
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