Repairs to rental property before first letting
Our elderly client owns a farmhouse from which the farm was managed. She later moved into a residential home. After this point, the farmhouse was no longer the base for running the business so our client let it out. Prior to doing so, repairs were necessary, including re-thatching the property.
Are we able to claim the cost of these repairs against the rental income?
The Inland Revenue's 'Taxation of Rents, IR150' In paragraph 307 indicates that relief will only be due if
· the expenses are incurred within seven years,
· is not otherwise allowable, and
· would have been allowed as a deduction if incurred after rental business started
The expenses were incurred just before the start of the business, I do not see that they would have been otherwise allowable and I believe the costs would have been allowable if incurred after the business commenced. Therefore it would appear they may be deductible.
There is another argument however that the repairs are capital as they were incurred to put the property into a position to be able to be let. In addition, the capital value of the property at the time it was acquired, or in this case taken into my clients rental business, was depleted by virtue of its slightly dilapidated condition. Therefore the costs incurred must be capital as they merely restored the property to its true value.
A contradiction! I will be pleased to receive any thoughts as to which treatment is correct.