We have a client with a portfolio of 5 Residential Lettings. In the 2018/19 tax year our client incurred costs of circa £7,000 to replace the Septic Tank at one of the properties as required due to the new regulations being introduced as from 1st January 2020. The new system is ‘all singing all dancing’ compared to what it has replaced but only because this was the legal requirement. Will the costs be allowable as ‘expenses’ being a replacement or will it be deemed a capital enhancement? – any comments or guidance would be appreciated
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Whilst being slightly concerned that a septic tank might sing and dance, I would feel that you have a good case there.
HMRC have accepted over the years that building regulations change and that what was acceptable 20 years ago no longer is.
You do not say when the particular property was purchased by your client but subject to that I would also likely use the double glazed window replacing the single glazed approach- modern equivalent.
I agree with lion and DJKL, you'd have a good argument for saying that this is a repair as the current septic tank is merely being replaced by a modern equivalent.
Windows are a part of a building. Changing them with modern equivalent repairs the building.
I'm not sure that a replacement of a whole item counts as a repair to a building. You wouldn't need replacement domestic items relief if it did.
Are septic tanks domestic items?
I think that is the right question to be asking. The conversation seemed (to me) to have started off on the wrong foot, hence my comment.
I guess you could view the septic tank as a separate asset, but I'd view it as part of the building.
I appreciate I'm jumping to different legislation here, but CAA 2001 s21 treats a sewerage system connected with a building as part of that building. A septic tank is part of the buildings sewerage system. Using the logic from s21, I'd argue that the house includes the sewerage system, and a replacement of part of that system, is just a repair to the building.
No.
A domestic item means an item for domestic use (such as furniture, furnishings, household appliances and kitchenware), and does not include anything that is a fixture.
Fixture means any plant or machinery that is so installed or otherwise fixed in or to a dwelling-house as to become, in law, part of that dwelling-house, and includes any boiler or water-filled radiator installed in a dwelling-house as part of a space or water heating system.
Are you going to take the septic tank with you when you sell the dwelling-house? And do you think you are entitled to do so under the terms of the standard sale/purchase agreement?
I've not studied septic tanks. Tends to make my brain hurt and my eyes water.
But it might be the case that, if I was particularly attached to the singing dancing tank, I would be able to take it with me and put back the one that just sat there not singing or dancing.
The point of my initial comment, as I said, was to get the conversation on track. Job well done, methinks. (And yes... I'd run with your answer.)
Windows are a part of a building. Changing them with modern equivalent repairs the building.
I'm not sure that a replacement of a whole item counts as a repair to a building. You wouldn't need replacement domestic items relief if it did.
Are septic tanks domestic items?
I'm pretty sure that I'd be more comfortable drawing an analogy between a septic tank and a window than between a septic tank and a new washer.
Without some sort of sewage system, the building doesn't work.
I'm pretty sure that I'd be more comfortable drawing an analogy between a septic tank and a window...
Is that a reference to Blackadder?
Mrs Pants: But what about the privies?
Blackadder: Um well what we are talking about in privy terms is the latest in front wall fresh air orifices combined with a wide capacity gutter installation below.
Mrs Pants: You mean you crap out the window?
Blackadder: Yes
Mrs Pants: Well in that case we'll definitely take it. I can't stand those dirty indoor things.
Surely part of a system? Is say your header tank the whole plumbing or merely a connected component? What happens if your garden gate rots and you buy another, would that be a problem? What about a garage door of a detached garage in the grounds of a let property?
I think the correct approach (as has been alluded to already but then seems to be passed over) is to consider firstly whether the expenditure is repair or replacement and in that connection you need first to consider, what is the entirety. Is it the Sceptic tank or the house?
I think most people would agree that the tank is simply an integral part of the house. It may stand separate from the building but is connected to it by pipework. If you look for case law support, the HMRC Business Income manual at BIM35467 refers to 2 old cases involving chimneys. The Samuel Jones case confirmed that the chimney was simply part of the factory whilst the Bullcroft case went the other way. If you look at the facts however, you will see that in Bullcroft, both new and old chimneys were in place at one and the same time and the old one could have remained in place, permanently. It was a question of fact (in each case) but one can see why the decisions went as they did.
If you conclude that the tank is simply part of the house, it follows that the expenditure in question is simply a repair (again others have already commented that any element of improvement is comparable to the double glazing issue).
If however, you consider the tank to be the entirety, that would bring in consideration of the other issues raised and I would agree the replacement of domestic items relief is not in point. I suspect however that it would be regarded as an integral feature (which brings us back to the entirety point (again mentioned by someone else) and simply supports the view that what we are looking at is a repair.
It's a repair !!
You might be right, but could you expand that answer so that it takes 5/6 paragraphs to say the same thing please ;)
I can't believe the level of debate here.
Makes a nice change, doesn't it, from all the carping and hand-gesturing that Aweb is famous for.
It's been some years since I was au fait with the U.K. tax system. However, going by other tax systems with the same problem, I would suggest that the expenditure is one of the following a) a capital allowance item of expenditure. Many things have been officially recognised as plant and equipment. b) It is wholly or partially a building improvement. If the expenditure raises the value of the building by a recognisable amount, the amount of the increase would be a building improvement i.e. capital. Some tax jurisdictions allow capital improvements to be depreciated e.g. 2.5%. c) If the expenditure is neither plant nor building improvement, then it must be a repair.