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Cost of adopting a road - Revenue or capital?

I am looking at a case where the client owns a number of properties in different areas. For one of them there are included costs of having the road adopted during the last year.

My initial thought was that this was capital and not allowable against the letting income, but in due course on the ultimate sale in the CGT computation.

Having done a little more research it would appear that these costs are probably repair costs payable to the council adopting the road to bring it up to standard for them to then take on responsibility for maintaing the road that was originally the responsibility of the owners. This being so it seems more likely that the costs areĀ  repairs and should be allowable against the rental income.

The costs do not exceed income and a profit will remain for the year, albeit reduced on previous years.

Do others have any experience of having argued this point with HMRC, or any views on which side of the line the expense falls?

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By neileg
17th May 2012 09:42

Make up of payments

Payments to the Highway Authority will comprise more than one element. There will be an design and inspection fee which is a charge for the authority exercising its statutory duty in ensuring that the design and construction of the road meets required standards. There may be a commuted sum which is a payment to fund future maintenance of the road once the authority takes on the liability. There may also be a payment to cover or contribute to the cost of works to bring the road up to adoptable standards.

I don't think any of that could be regarded as repair costs for your client and would therefore be a capital cost. However, I'm not a tax expert and there may be different interpretations.

Cheers, Neil

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By Nevill
17th May 2012 10:48

Would believe this is capital
Whilst working for a large insurance company which owned the freehold of a very large estate where there were more than one unadopted road, when one was adopted the cost was treated as a capital expense. The accounts were examined by the internal tax department and then Audited by a top 4 accountancy firm, so without being a tax expert I would say that capital is the correct treatment of this type of expense.

Hope this helps

Nevill

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