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HMRC identify repairs as the restoration of an asset by replacing subsidiary parts of the whole asset. An example is the cost of replacing roof tiles, this will not be regarded as a repair if it is a significant improvement of the asset beyond it’s original condition. This would then be regarded as capital expenditure and not an allowable deduction from rental profits
Repairs required to a newly acquired property that were necessary before the property could be brought into use will form part of the capital costs and therefore are not deductible expenses.
Improvement expenditure on such things as building extensions or initial installation of central heating are also not deductible although they will count as part of the cost for capital gains.
HMRC have also had to 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 they 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.
They 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, they will accept the expenditure is allowable revenue expenditure.
Interest payable on loans used to buy land or property which is used in rental business, or on loans to fund repairs, improvements or alterations, is deductible in computing the profits or losses of the rental business.
The loan amount eligible for relief must be mortgaged on the rental property regardless of use,
or
Mortgaged on another property but used wholly and exclusively to purchase/improve the rental property (if only part of the loan is used only that proportion that relates to the rental property will be allowable)
Expenses of a revenue nature are deductible if they are incurred for the purposes of the rental business. Generally fees are capital if they relate to a capital matter such as the purchase of property.
The cost of rent collection is generally deductible provided it relates wholly and exclusively to property let out on a commercial basis.
Council tax / rents/ rates /Insurance and utility bills whilst property is empty
Expenses connected with premises will normally be allowed as a deduction unless the expense relates to a capital matter. Examples of allowable expenditure include:
HMRC approved rates can be used for a rental business with a Turnover below the VAT threshold. However, travelling expenses will not be deductible if your journey is partly private. For example, includes a visit to the shops to buy your weekly groceries.
The cost of placing adverts in newspapers advertising for new tenants is an allowable deduction. However, you cannot deduct the cost or expenditure incurred on permanent signs or other permanent equipment for displaying vacancy details as this will be regarded as capital expenditure.
Expenses of advertising property to buy or sell is also capital expenditure and not allowable as a deduction for income tax purposes.
As well as renting a property to a tenant you may also provide additional services, the cost of providing these services are an allowable deduction, provided the receipts you earn from them are also included as part of your rental business income. Examples are:
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