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Building works - revenue or Capital?

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Should building works to bring a property up to standard be treated as a revenue or Capital item?

Is there a policy I can use?  Formula - as in if the works cost more than 10% of the cost of the property?

Replies (8)

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By Tim Vane
08th Jul 2019 15:27

How long has the property been owned, and did the property price when acquired reflect the state of repair. See the Law Shipping case.

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Replying to Tim Vane:
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By Sue Bell
08th Jul 2019 15:41

Hi Tim,
Thanks for your response.
Property is newly owned and cannot be let without the works being done. The price did reflect the condition.
I will go and read the article.
Thanks again :)

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Replying to Sue Bell:
By Tim Vane
08th Jul 2019 22:58

In that case it sounds like Capital Expenditure. The property would have cost more had it not needed the work.

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RLI
By lionofludesch
09th Jul 2019 10:07

I vote capital too.

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By Vile Nortin Naipaan
09th Jul 2019 12:14

>9.7% = capital.

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By Dib
09th Jul 2019 13:06

Odeon Associated Theatres Ltd. v Jones (H.M. Inspector of Taxes)(1) (1969-1973) 48 TC 257 anyone?

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Replying to Dib:
By Duggimon
09th Jul 2019 14:38

"The purchase price paid for any theatre was not affected by its state of repair. From the beginning of the war until the early 1950s the building of theatres was prohibited, as was decorating and repair work except for a small amount of essential maintenance, which was inadequate to keep theatres in a proper state of repair. If a theatre was in a poor state of repair on acquisition the effect on public attendance was minimal, since all competing theatres were in a similar state. The type of work necessary to put the Company’s theatres into a proper state of repair was maintenance and repair work, which in normal times is carried out continuously. Such repairs were carried out by the Company in due course, and were charged in their entirety to trading account, whether attributable to current user or ranking as deferred repairs which could be related back for the purposes of excess profits tax to periods for which that tax was chargeable."

Not the same situation at all, if they'd bought them at a knock down price because the repair work could have been but wasn't done, it'd be capital.

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Replying to Duggimon:
RLI
By lionofludesch
09th Jul 2019 19:11

Duggimon wrote:

Not the same situation at all, if they'd bought them at a knock down price because the repair work could have been but wasn't done, it'd be capital.

Well, sort of.

Odeon - asset can still be used > repairs.

Law Shipping - asset not in fit state > capital.

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