Expense – Revenue or Capital

Have you got a rental property and looking to renovate or carry out repairs? Are you concerned with what expenses you can claim for tax purposes?

Generally allowable expenses are of a revenue nature rather than a capital nature. Provided that the expenses are wholly and exclusively for the purpose of the letting, then those expenses will be allowable expenses and can be offset against your rental income. Such common allowable expenses include business rates/council tax, insurance, repairs such as water leakages, gas leaks, burst pipes, repairing doors, external walls, gutters, roofs, repainting and decorating to maintain the original condition, advertising for tenants and management costs.

However, you need to be careful where certain expenditure could be seen as capital in nature and therefore cannot be offset against your rental income. Instead, relief will only be obtained when you come to sell the property (under Capital Gains Tax). Examples of such expenses include improvement expenditure like building an extension or installing central heating.

Initial capital costs for purchasing items such as washing machines are not deductible against rental income but replacement items can be claimed provided it is a ‘like for like’ replacement. This includes furnishings, appliances (including white goods) and kitchen-ware provided the items are wholly for use by the tenants. If the items represent an improvement, this extra cost should be apportioned. Tax relief can also be claimed for the incidental costs of disposing of old items when replacements are acquired.

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