Buy to let repairs prior to letting?

Buy to let repairs prior to letting?

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My client has several buy to let properties.
Is the cost of repairs and replacement prior to letting all capital or is it allowable against the future rent as expenditure normally undertaken by a landlord rather than a tenant ie replacement bathrooms suites,central heating carpets etc?
Could the revenue argue its all capital anyway as the house must have been cheaper as the expenditure was required?
If the work is undertaken after the property has been let ie between tenancies does this make a difference?

James Cairns

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By User deleted
29th Aug 2006 18:39

The Revenue are not unhelpful here.
Where relief is available it is on the 'Odeon Theatres' principle. Otherwise the expenditure is capital, following 'Law Shipping'.

Many of the old cases have been superseded following ITTOIA s. 272(1), which itself follows the 'new' Sch A rules which were introduced from 1995, by which 'Schedule A' income is broadly determined under 'Sch D' principles.

The Revenue explain their approach in the Property Income Manual, at para 2020.
This reads as follows:-

"The mere fact that the taxpayer bought the asset not long before the repairs are made does not in itself make the repair a capital expense. But a change of ownership combined with one or more additional factors may mean the expenditure is capital. Examples of such factors are:
∙ A property acquired that wasn't in a fit state for use in the business until the repairs had been carried out or that couldn't continue to be let without repairs being made shortly after acquisition.
∙ The price paid for the property was substantially reduced because of its dilapidated state. A deduction isn't denied where the purchase price merely reflects the reduced value of the asset due to normal wear and tear (for example, between normal exterior painting cycles). This is so even if the taxpayer makes the repairs just after they acquire the asset.

BUT
∙ The taxpayer makes an agreement that commits them to reinstate the property to a good state of repair. For example, Fred is granted a 21-year lease of a property in a poor state of repair by his landlord that he, in turn, sublets. When Fred's landlord grants him the lease Fred agrees that he will refurbish the property. Fred's expenditure on making good will be capital expenditure and not allowable. But Fred's landlord may be chargeable on the value of the work under the premiums rules (PIM1200 onwards) and Fred may qualify for some relief (see PIM2300 onwards). See below if payments for dilapidations are made to the landlord at the end of the lease.

It isn't necessary for all these factors to be present for the expenditure to be capital. The underlying principle is that the cost of buying a property in good condition is clearly capital expenditure. Hence the cost of buying a dilapidated property and putting it in good order is also capital expenditure."

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