Replacement Windows - Allowable expense?

[Catamong]

I purchased a BTL property 2 years ago which was built in the early '90's.

It remained empty for a few months whilst I carried out various improvements, and as I was keen to minimize my ongoing maintenance costs I replaced the existing painted double glazed timber windows with new PVCU double glazed windows.

The existing windows were not defective, so I do not believe that these works could be classed as a "repair" to the property.

My question is, can the window replacement works be classed as an allowable expense for tax purposes, which entitles me to tax relief?

I have read the PIM, section 2020, which says right at the bottom "Generally, if the replacement of a part of the ‘entirety’ is like-for-like or the nearest modern equivalent, we accept the expenditure is allowable revenue expenditure".
Any opinions on this one?

Catamong.

[Tax Accountant]

I purchased a BTL property 2 years ago which was built in the early '90's.

It remained empty for a few months whilst I carried out various improvements, and as I was keen to minimize my ongoing maintenance costs I replaced the existing painted double glazed timber windows with new PVCU double glazed windows.

The existing windows were not defective, so I do not believe that these works could be classed as a "repair" to the property.

My question is, can the window replacement works be classed as an allowable expense for tax purposes, which entitles me to tax relief?

I have read the PIM, section 2020, which says right at the bottom "Generally, if the replacement of a part of the ‘entirety’ is like-for-like or the nearest modern equivalent, we accept the expenditure is allowable revenue expenditure".
Any opinions on this one?

Catamong.

The PIM contents quoted in the query is as follows:

''What we regard as a repair will necessarily change with the passage of time to reflect technological improvements. This issue was considered in the tax case Conn v Robins Brothers Ltd [1966] 43TC266. As a result we accept that the replacement of a part of the ‘entirety’ with the nearest modern equivalent is allowable as a repair for tax purposes and not disallowable as improvement expenditure.

An example is double-glazing. In the past we took the view that replacing single-glazed windows with double-glazed windows was an improvement and therefore capital expenditure. But times have changed. Building standards have improved and the types of replacement windows available from retailers have changed. We now accept that replacing single-glazed windows by double-glazed equivalents counts as allowable expenditure on repairs.

Generally, if the replacement of a part of the ‘entirety’ is like-for-like or the nearest modern equivalent, we accept the expenditure is allowable revenue expenditure.''

I quote below another relevant paragraph from the same PIM 2020:

'' Repairs etc after a property is acquired:

Repairs to reinstate a worn or dilapidated asset are usually deductible as revenue expenditure. The mere fact that the taxpayer bought the asset not long before the repairs are made does not in itself make the repair a capital expense.

But a change of ownership combined with one or more additional factors may mean the expenditure is capital. Examples of such factors are:

* A property acquired that wasn’t in a fit state for use in the business until the repairs had been carried out or that couldn’t continue to be let without repairs being made shortly after acquisition.''

* The price paid for the property was substantially reduced because of its dilapidated state. A deduction isn’t denied where the purchase price merely reflects the reduced value of the asset due to normal wear and tear (for example, between normal exterior painting cycles). This is so even if the taxpayer makes the repairs just after they acquire the asset.


However, in your case you state that:

'' It remained empty for a few months whilst I carried out various improvements, and as I was keen to minimize my ongoing maintenance costs I replaced the existing painted double glazed timber windows with new PVCU double glazed windows.''

But then you go on to state that:

''The existing windows were not defective, so I do not believe that these works could be classed as a "repair" to the property.''

The real question is not whether or not they were defective but whether they constitute improvements. As is made clear in the PIM, a double glazed windows replacements are no longer considered an improvement.

As the PIM makes it clear, there are no clearcut answers in all case. In my opinion, the answer is hinges on whether the whole property was in a fit and proper state to let without carrying out the various improvement works you have carried out. It it wasn't in a fit state, ALL the improvement works, including the windows, will be capital. Otherwise, windows at least will be allowable deduction of your lettings trade.

Finally, any capital expenditure not allowed as repairs will be added to your cost of the property for CGT purposes if and when you sell.

I hope this helps.

Ramnik

[Catamong]

Ramnik,

Many thanks for your comments,

Catamong.

[Tax Accountant]

Ramnik,

Many thanks for your comments,

Catamong.

Cat Among ... .......,

You are welcome.

Ramnik

[Grange]

I think Ramnik covers the technical basis very clearly, but I would be more bullish than he.

The question is not "Does replacing windows which are not damaged constitute 'repairs'?", but "Can we obtain a revenue deduction for the replacement cost of the windows?'

We need therefore to consider whether it is a capital expense.

Catamong states that the old windows were not in any state of disrepair - therefore their condition does not reflect the price paid for the property. Equally, there is no suggestion that there is any element of 'improvement' as the windows were double glazed when the property was acquired. (Believe me, when you are paying to have your uPVC windows painted in 15 years' time, you will agree with me, but that is by the by.)

Therefore the expenditure is not capital. It is not a tax 'nothing'. It is therefore revenue, so my view is that a tax deduction should be claimed.


Imagine you have a BTL the rooms of which were painted shocking pink and lime green just before you bought it. You would not hesitate to claim a revenue deduction for painting it magnolia, would you? There is no suggestion of improvement (save for on aesthetic grounds!) and there is no suggestion that it was disrepair that was reflected in the price of the asset when it was acquired.

[Tax Accountant]

I think for a change both Grange and I are on the same wavelength. He makes a very strong and persuasive case which is difficult to refute.

However, I would offer the following comments to throw some light behind my thinking.
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I stated, and I quote:

''The real question is not whether or not they were defective but whether they constitute improvements. As is made clear in the PIM, a double glazed windows replacements are no longer considered an improvement.

As the PIM makes it clear, there are no clearcut answers in all case.

In my opinion, the answer is hinges on whether the whole property was in a fit and proper state to let without carrying out the various improvement works you have carried out. It it wasn't in a fit state, ALL the improvement works, including the windows, will be capital. Otherwise, windows at least will be allowable deduction of your lettings trade.''

Therefore, on the basis of the expenditure on windows alone, both Grange and I have reached the same conclusions.

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However, I was influenced by the querist's comments as follows:

'' It remained empty for a few months whilst I carried out various improvements, and as I was keen to minimize my ongoing maintenance costs I replaced the existing painted double glazed timber windows with new PVCU double glazed windows.''
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I also quote from the H M Revenue & Customs' PIM as follows:

''Repairs to reinstate a worn or dilapidated asset are usually deductible as revenue expenditure. The mere fact that the taxpayer bought the asset not long before the repairs are made does not in itself make the repair a capital expense.

But a change of ownership combined with one or more additional factors may mean the expenditure is capital. Examples of such factors are:.........''
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As Grange would agree, such points are routinely argued either way depending on which side of the fence you are. Identical situations in two different cases could end up being decided differently depending on how strongly one of the party is prepared to argue the case.

I think that the answer depends on how the window replacement fits in with other improvements carried out at the same time and how the total expenditure is viewed as a whole.

The querist should weigh up all the factors and decide how best to deal with the expenditure on windows. If he should decide to claim the expense as a revenue expenditure, he should also consider making his position clear in the ''Additional information'' boxes of his Self-assessment tax return.

To conclude, I do not disagree with Grange's view or his comments. I, on my part, would like to see the whole picture before reaching a firm decision.

Ramnik

[Grange]

I think for a change both Grange and I are on the same wavelength.

My dear friend, as you spend much more time on this forum than do I, and so respond to questions much more promptly than I ever could, there seems little point in posting 'I agree with Ramnik' at the end of every thread!

Tax (as we both know) is full of grey areas, I feel this is one where I would be very unhappy if the inspector were to challenge me! I would be very unhappy to view the window changes in the context of other improvements to the property. Each change must be viewed with regard to the facts that are relevant to that change to the property. I do not think that re-roofing (for instance) the property has any bearing on the decision to change a perfectly good set of double glazed windows for another perfectly good set.