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Rental Repairs vrs Capital - tanking basement to resolve damp issue

Rental Repairs vrs Capital - tanking basement...

I have a rental property which has previously been let out, including a basement bedroom. Issues with damp in the basement lead us to resolve the issue by tanking the basement(with associated redecoration). I was just wondering whether there was any argument for classing this as repair costs? If the basement had previously been tanked and this had failed and needed to be redone - would this make a difference?  Many thanks 

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07th Mar 2016 14:05

BIM 35480 assists you a little at HMRC website

‘No additional space was created anywhere. The inside appearance of the ground floor was somewhat changed: the upper two floors and roof were as before, except for the chimney and changes in materials.’

Buckley J said that the primary facts were certainly capable of supporting the conclusion that the work was simply a repair. He went on to consider the effects of the changes in techniques over the more than four centuries since the building had first been constructed; saying at page 274:

‘No doubt in the course of carrying out these works certain structural alterations were made, as one would expect with any extensive repair of a building over 400 years old, when repairs were being carried out at a time when building techniques have completely altered. But the fact that there were alterations in the structural details of the building does not seem to me to be a good ground for proceeding upon the basis that the work produced something new. On the contrary, I think it is implicit in the Commissioners' finding that the result of this work was not to produce something new but to repair something which had previously existed. Upon that basis it seems to me that there is no ground for regarding this expenditure as a capital expenditure.’

Buckley J considered if there were any circumstances which would lead to the conclusion that the expenditure was capital.

The expenditure was not associated with the acquisition of the premises.If the work had not been carried out it would have been impossible to carry on the business. The work was incurred to allow the company to continue to earn profits by putting its existing asset into a proper state of repair.There was no evidence that the asset when acquired by the company was not in a fit state and that the cost of acquisition reflected it being in an unusable state (seeBIM35450).

The key was that ‘the result of this work was not to produce something new but to repair something which had previously existed’. The character of the asset (see BIM35460) was unchanged by the work.

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By sheree
07th Mar 2016 16:40

Repair works post purchase but before first let

Thank you so much for your very thorough and referenced explanation - much appreciated. 

Your answer also highlights another aspect which is that works carried out post purchase but before first let can be classed as revenue expenditure (provided not adding something new and that the purchase price was not reduced to reflect works needed) - correct?

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07th Mar 2016 17:19

initial repairs before letting

Yes if the repairs were carried out prior to the first letting, that would not debar them, as such.

Especially if the repairs / works /maintenance were carried out with a view to the letting of the property, at a profit, to a future tenant.

Thus preparatory expenses in respect of the letting income [re the walls / gutters / garden / locks / roof repair / drains / water tank issues / showers / bath / radiator maintenance / heating/ painting / pest control / clean / gates / doors etc.] would certainly be allowed.  Expenditure incurred well before the first letting might be more tricky.

Incidentally the data, above, was just a cut and paste from the HMRC manual, on the website, this is not too difficult to find online.

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