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Property refurbished costs before disposal

Claiming either capital or revenue expenditure

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Client has a number of properties.  Tenant moved out in September 2020 and property was in poor condition so decided to refurbish spent 15K with new carpets, new bathroom, new fence and decoration of the whole house.  Builder never gave the breakdown on their invoice.

Property was given to letting agents in January 2021 then it was decided to sell the property in March 2021 and property was sold this month. Under PIM2510 business has not ceased and the intention was to let the property so she the expenses are allowable under  either capital gains tax or income tax ?

How do split the expenditure between capital and revenue.  The client would prefer the whole 15K to go under capital.

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By David Ex
18th Oct 2021 13:19

JimLittle wrote:

How do split the expenditure between capital and revenue.  The client would prefer the whole 15K to go under capital.

You apply statute and case law to determine what is a repair and what is an enhancement. You don’t ask what the client would prefer.

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By JimLittle
18th Oct 2021 14:21

Yes I agree I didn't ask her what she preferred. Problem is typical builder invoices with one figure on the invoice. How to proportion between capital and revenue.

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By Bobbo
18th Oct 2021 15:46

if your client didn't get a breakdown of the cost at some point (i.e. maybe at the quotation stage) then they are a bit of a wally.

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By ann domonkos
18th Oct 2021 13:27

Doubt whether this will be allowable for capital gains to be allowable as improvement it really has to be the luxury end and it says so on the notes to the non resident one ; it states you cannot claim for decorating or maintenance but you can claim for an extension or the fitting of a luxury kitchen!If she has a number of properties they will be treated as a whole for SA so it will just be offset against the other ones .

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By ireallyshouldknowthisbut
18th Oct 2021 14:05

Almost certainty mainly revenue if only £15k.

The only element of improvement might be in the bathroom if its remodelled, but they are normally "like for like" with only mild improvement. Eg a screen over the bath vs a curtain but that's what £150...

The PIM has a huge section on repairs vs capital. You have to go through the works bit by bit.

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By CJaneH
18th Oct 2021 15:35

This is a trap when decorating and repairs of a single property left till tenants vacate the property. The repair cost can only be set of against rent, if rents less than repair costs and decision made to sell the loss in the final year is wasted as losses can not be set back

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By More unearned luck
18th Oct 2021 15:38

I agree with the others - it seems unlikely that there is a capital element to the work.

Your client seems perverse in wanting to eschew relief at 20/40/45% for relief at 18/28/28%. Any losses he has should only lead to a timing difference.

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By Hugo Fair
18th Oct 2021 17:29

"Builder never gave the breakdown on their invoice" ... but "spent 15K with new carpets, new bathroom, new fence and decoration of the whole house."

Even without a detailed breakdown of costs, client must have been involved at some level in decisions (e.g. carpet at £4/sq m or at £40/sq m - kitchen units include replacement of carcasses or just fronts - etc) ... so must be able to work out approx. apportionment of materials/labour for each part of the project.

BUT as others have said, why bother doing this unless you've identified a part of the project that you honestly think meets the criteria for CapEx.
Otherwise, by default everything is a revenue expense ... which is tough on client who presumably wasn't advised of the impact of their decisions before they made them!

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