The Tax Benefits of Home Maintenance in the UK

To keep our properties in prime condition, we need to look after them with tender love and care actively. Not only does this preserve the value, but in the case of landlords, there are also financial benefits relating to tax. So, what are the tax benefits of home maintenance in the UK?

Calculating profits and making appropriate deductions is a lengthy process for landlords and property investors but essential to remain on the right side of the law.

For a first-time landlord, there are so many hurdles to leap over to generate returns on a property successfully. Legislation. Void periods. Correct accounting and taxes.

The last time the Government looked at the scale of landlord tax evasion in the UK, they revealed that up to 1.5 million landlords had underpaid or failed to pay up to half a billion pounds in tax.

Adhering to legislation and correctly paying taxes is all part of being a compliant, successful landlord. When home maintenance costs are involved, however, there are benefits from a tax perspective for landlords.

Landlords can deduct expenses from their finances when working out taxable rental income as long as they are wholly and exclusively for the purpose of renting out the property.

Expenses purely for capital gains cannot be deducted from the offset. Still, landlords should retain these records as they can potentially be set against the Capital Gains Tax when selling the property in the future.

The UK Government sets out a clear distinction as to what is classed as a repair remedy and maintenance work, and what this means relating to tax benefits.

What is the difference between repairing/maintenance from a deductible tax perspective?

There will be no difference between the two terms from a general perspective (certainly that of tenants in situ). Yet, for tax purposes, the differences are very clear.

Allowable expenses include short-term repairs made to the property, whilst maintenance is considered long-term capital improvements.

HMRC states repairs to be the restoration of assets to their former condition, sometimes by installing replacement parts. This includes but is not limited to:

• Repairing or replacing a broken down boiler.
• Replacing roof tiles damaged or removed during inclement weather.
• Damp and rot treatment.
• Repair broken windows, doors, doors, furniture and appliances such as cookers.
• Brick re-pointing.

As revenue items, repairs are deductible in computing the profits of the property rental business.
Maintenance is a very different prospect and is considered to be an enhancement to the property to generate capital.
When the expenditure relates to maintenance as opposed to repairs for revenue, such as significant improvements, the lines relating to tax relief are far more blurred.

Maintenance is considered to be enhancements such as:

• Adding an extension to a property.
• Converting previously uninhabitable space, such as basements or lofts.
• Remodelling rooms such as bathrooms or kitchens, using far more expensive materials than previously utilised.

There is also a fine line when repairs become so significant that the financial outlay involved can turn it into a capital item.

How can I ensure I carry out tax-deductible work as opposed to capital expenditure enhancements?

The general rule that HMRC approve of is replacing or repairing like-for-like. Take refurbishing a kitchen as an example. Typically this would be considered as a repair (providing the replacement kitchen is to a similar standard as the original), thus making it a deductible expense where tax is concerned.

Substantially upgrading or remodelling the kitchen, however, including more expensive materials and appliances, would cross into the capital expenditure and mean that expenses can’t be deducted; as it would be seen to be primarily enhancing the value of the property as opposed to serving a function of generating revenue through tenant income.

HMRC do, however, treat modern equivalent replacements as tax-deductible, even if the replacement serves as an overall improvement to the property which could be seen to increase the value. For example, replacing older windows with double-glazing. Not only does this improve the energy efficiency of the property, cut bills and ultimately add to the value of the property. HMRC will still allow it to be a deductible notion.

The general consideration is that repairing old assets using modern materials is permitted as a deduction, providing new materials are ‘broadly equivalent’ to the old. Another example of this would be replacing wooden beams with steel beams. Like-for-like is the safest approach to ensuring deductible work as opposed to capital expenditure.

Can I claim deductions on work as a homeowner?
In the event you aren’t letting out a property, there are still ways to claim tax deductions on home maintenance. This particularly relates to work carried out in an office space in the home.

Deductions can be claimed when improvements are made to spaces in the home that are exclusively used for business. As long as you are self-employed and run a business from your property, then home renovation expenses can be deducted.

If you are eligible for tax breaks from having a home office, then you are entitled to claim both improvements and repairs in the same tax year, If the office comprises 20 per cent of the space in the property, for example, the deductible tax would be 20 per cent.

So what are the tax benefits of home maintenance in the UK?
Ultimately, the benefits are that costs you would look to incur when maintaining a property can be rescinded. This can help when planning and scheduling as you can work around and to certain budgets, being able to plan in advance. However, you need to consider whether the works are like-for-like, modern equivalent upgrades, or serve only the purpose to grow the value of the property.

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