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Differientiating between Capital/Revenue Expenditure

Hi

I'm working on a client who has bought a block of flats. He has had them for over a year. First 6 months were in renovation,refurbishment. Next 7-8 months he has been letting them.

My question is it right that all expenditure before the asset is put to use is capital expenditure. For example, boiller, central heating, doors, double glazed windows etc would be capital expenditure. What about painting, repairs that cannot be seen etc. Does this fall under revenue expenditure?

Many thanks.

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Nearly

Hi - basically it's the expenditure that's needed to put the place into an habitable condition that is capital.  Unfortunately, as may be the case here, if this question is only now being addressed, ie after the work was done, it can be more tricky to identify pre & post habitable expenditure.

It could be however that you are correct and certainly, if the painting or repairs to common parts, were not crucial to letting the flats out then they will be revenue expense.

With regard to boiler, CH, doors, windows etc if the originals would have been OK but it was decided that he may as well replace them whilst doing the other stuff then these could well be regarded as replacements (repairs).  However if any are new instalations or a substantial improvement to what was there before then they will be capital.

This is only a short summary of considerations but hope it helps.

 

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16th Dec 2011 09:50

Yes

I concur.  It's a bit like the Odeon cinemas case - you need to differentiate the costs of making the property "ready to let".  In retrospect it would have been better to start renting out before the majority of the works were carried out, as it would have better supported your case.  But the tax tail can't always wag the dog.

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Other properties?

Was this the first property he bought or did he already have a rental business going?

http://www.hmrc.gov.uk/manuals/pimmanual/PIM2505.htm 

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By refs8
16th Dec 2011 11:58

Taxcafe

Have a look at buying some of the taxcafe books they are excellent for this type of work

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