Repairs vs Improvements: The Tax Distinction

For tax you only care about one thing: does the work put the property back how it was, or does it make it better than it was.

"This guide provides general information about UK landlord tax obligations. It is not financial or legal advice. Tax treatment depends on your individual circumstances and may change. Consider consulting a qualified accountant or solicitor for advice specific to your situation."

1. The core rule HMRC actually uses

Legal basis:

Property profits are computed using trading principles under ITTOIA 2005 s272, so you follow the normal revenue vs capital rules for trades.

HMRC's PIM2030 and the Business Income Manual say:

• Repairs = revenue, deductible against rent.
• Improvements = capital, not deductible against rent (but usually added to CGT base cost).

Key questions to ask every time:

• Does the work restore the asset to its previous condition, using the nearest modern equivalent materials or technology? = likely a repair.
• Does it add something new, make it substantially better, bigger or longer-lasting than before? = likely an improvement.
• Are you replacing a subsidiary part (repair) or the whole asset (often capital)?

Changing technology does not automatically make something an improvement. HMRC explicitly say modern equivalents can still be repairs.

2. Specific examples landlords argue over

Boilers

Old boiler swapped for a modern condensing boiler doing the same job:

• HMRC now accept this is a repair where it is simply the nearest modern equivalent.
• In 2023 they wrongly told some taxpayers it was not deductible, but have since written to correct this.

Basic boiler replaced with an entire new central heating system (radiators added where none existed, system extended significantly):

• More likely partly or wholly capital -- you have added new capacity rather than just replacing a failed unit.

Windows

Single-glazed rotten windows replaced with double-glazed units:

• HMRC say this is now a repair, as double glazing is the modern equivalent -- replacing like-with-currently-available-like.

Standard windows swapped for high-end structural glass wall:

• Goes beyond normal; likely treated as an improvement.

Wiring and electrics

Rewiring an old house to current standards (no layout change, no extra rooms):

• Generally a repair, restoring function and safety.

Rewiring plus adding entirely new circuits for a loft and major extension:

• The extension part is capital; you can apportion the invoice between repair and improvement.

Kitchens

Basic tired kitchen replaced with a modern but broadly similar kitchen (similar layout, mid-range units):

• Usually a repair -- you are updating like-for-like in today's materials.

Basic kitchen replaced with luxury bespoke units, stone worktops, high-end designer appliances, major layout change:

• HMRC will treat much or all of this as capital improvement -- you have significantly upgraded the asset.
• You can split a contractor's invoice: portion for repair (deductible) and portion for improvement (capital).

Other common items

• Damp-proofing to fix a moisture problem: generally repair.
• Loft conversion creating a new room: always capital improvement.
• New extension / extra room: always capital.
• Repainting and replastering after wear and tear or local damage: repair.
• Replacing the entire roof: often treated as capital, especially if it extends life or improves significantly; patch repairs or partial replacement are more likely revenue.

3. Whole asset vs subsidiary part

HMRC use a "whole asset" test:

• If you replace a subsidiary part of a larger asset, that is usually a repair. Example:
• Replacing some radiators, floorboards, or individual windows in a larger building.
• If you replace the entire asset, it is often capital, especially if the building or main structure is the "asset":
• Replacing the entire roof in one go.
• Demolishing and rebuilding major parts of the property.

But if the "asset" is the building, replacing subsidiary systems (boiler, wiring, individual rooms) will often still be treated as repairs unless the work amounts to a reconstruction of the property or clear upgrade.

The manuals make two more important points:

Pre-letting repairs: work done shortly after purchase is not automatically capital. If the place was lettable and price was not heavily discounted for disrepair, restoring it before first let can still be a revenue repair. If you bought a wreck cheaply and had to do major work before any letting was possible, that is much more likely capital.

Mixed jobs: If one project includes both capital works and repairs, you are allowed to apportion and still claim the repair share.

4. Capital allowances and why they rarely help resi landlords

Residential property

• Since April 2016, normal BTLs and residential landlords cannot claim capital allowances on fixtures or integral features (electrics, plumbing, heating) in dwellings.
• For furniture and appliances you now use replacement of domestic items relief, not capital allowances.

Commercial property / mixed-use

• In shops, offices and other commercial parts, "integral features" rules apply: replacing more than 50% of an integral feature within 12 months can be treated as capital, potentially eligible for capital allowances rather than repairs deduction.

So for most of your residential portfolio:

• If it is capital, your only benefit is at CGT time when you sell (you add it to base cost).
• You do not get any annual deduction via capital allowances.

5. What HMRC actually challenge -- and what forums get wrong

What HMRC look for in enquiries

Big one-off refurb invoices right after purchase: They check if the property was habitable or whether you effectively built value that should be capital.

Major upgrades claimed as repairs: Extensions, lofts, full roof replacements, high-end kitchen/bathroom refits all claimed as 100% repairs.

No apportionment: Mixed jobs where everything is dumped into "repairs and maintenance" even though there is a clear improvement element.

Lack of description: Vague "works" or "refurbishment" entries with no split; they expect you to be able to explain what was repair vs improvement and why.

What forums get wrong

"If it is just after you buy it, it must be capital." HMRC say timing alone is not decisive. The key is whether the property was in a fit state and whether the price was materially discounted for disrepair.

"Anything that makes it nicer is an improvement." Not true. Using modern materials or better-efficiency kit is still a repair if it is the nearest modern equivalent and does broadly the same job.

"Whole kitchen or bathroom replacement is always capital." HMRC accept that replacing a worn-out kitchen with a broadly similar modern kitchen is a repair. It only becomes capital when you clearly upgrade beyond what was there before.

"You cannot claim any pre-let works." You can claim pre-letting revenue repairs incurred within seven years before the property business starts, if they would have been deductible had the business been running at the time.

The safe play is to document each big job with:

• A one-line description in landlord language ("Replace old combi with modern equivalent", "New en-suite added in loft conversion").
• A clear split between repair and improvement where both happen.

Legislation tracker, budget coverage, new tools. Free, no spam.

Didn't find what you were looking for?