Tax treatment of drive repair

[johnjw]

I have a rented house with a long drive and yard; both are surfaced with tarmac over concrete. The tarmac is breaking up and needs removal/replacement. The estimate for replacement with a textured concrete surface is £4500 - a sizeable portion of the annual rent. I'd appreciate advice on the best way to enter this costs into my accounts.

[Tax Accountant]

I have a rented house with a long drive and yard; both are surfaced with tarmac over concrete. The tarmac is breaking up and needs removal/replacement. The estimate for replacement with a textured concrete surface is £4500 - a sizeable portion of the annual rent. I'd appreciate advice on the best way to enter this costs into my accounts.

I assume this is not a recently acquired property.
On this assumption, this appears to me to be falling within the repairs/renewals category.

Provided this is not an improvement, I don't see any reason why it shouldn't be allowed as an expense of your lettings business, notwithstanding the large amount.

See the following extracts from HMR&C property income manual:

''It is largely a question of fact and degree in each case whether expenditure on a property leads to an improvement.

Sometimes the improvement may be so small as to count as incidental to a repair. In the absence of other capital indications, the entire cost is then revenue expenditure.

Problems can arise where the taxpayer does work on an old asset. A repair or replacement of a part of a building using modern materials may give an apparent element of improvement because of the greater durability, superior qualities and so forth of the new material. But the cost normally remains revenue expenditure where any improvement arises only because the taxpayer uses new materials that are broadly equivalent to the old materials.''

'' Even if the repairs are substantial, that does not of itself make them capital for tax purposes, provided the character of the asset remains unchanged. For example, if a fitted kitchen is refurbished the type of work carried out might include the stripping out and replacement of base units, wall units, sink etc., re-tiling, work top replacement, repairs to floor coverings and associated re-plastering and re-wiring. Provided the kitchen is replaced with a similar standard kitchen then this is a repair and the expenditure is allowable.''

''What we regard as a repair will necessarily change with the passage of time to reflect technological improvements. 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 hope this helps.

Ramnik

[johnjw]

Ramnik,
Thank you for your reply which answers my query very well. The property income manual quote does seem to cover this situation; ie. where a technological development (in this case availabilty of textured concrete) may seem to be to some extent, an improvement (compared to tarmac). However it is more suitable for purpose and the cost difference is in fact quite small.
John

[Tax Accountant]

Ramnik,

Thank you for your reply which answers my query very well.

The property income manual quote does seem to cover this situation; ie. where a technological development (in this case availabilty of textured concrete) may seem to be to some extent, an improvement (compared to tarmac). However it is more suitable for purpose and the cost difference is in fact quite small.

John

My pleasure John.
Ramnik