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Revenue or capital?

Expenditure on FHL - revenue or capital

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Hello -

I have a client who owns a 16th century FHL, which she has let for over 7 years+. During the coarse of the current tax year, the property developed severe damp problems and lettings had to cease whilst remedial works were investigated/carried out. It transpires that the severe damp issues were caused by a number of factors.

Firstly it was discovered that a pipe had broken under the flooring, secondly, the previous owners had put an impermable polyurethane surface on the outer walls which holds the water in. The original cottage walls were cornish lime cob, which allows the walls to breath.

Thirdly the pitch of the porch roof caused flooding in the gully separating the cottage from the adjoining vertical cliff.

As a result my client has incurred considerable costs in excess of £50K in having the old render removed and replaced with lime cob, the solid pine floors and joists which were rotting as a result of the dampness caused by the broken pipe, replaced with solid oak flooring, which on the advice of the builder is more in keeping with coastal cottages as it is less suseptable to the salt air.

Additionally, a replacement window was also installed as the previous Bay window had rotted. When the double glazed window was installed, the cob wall was thickened to ensure that it took the weight of the window.

My thoughts are that the cob rendering would be revenue but I have doubts as to the flooring, roof and wall thickening.

There were also some minor costs ie replacing rotten wooden skirting with slate skirting in order to cut down on the risk of rot. Again my view is that this would be capital in nature!

I would be grateful for readers thoughts on the matter.

Thank you 






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17th Mar 2019 12:23

My view is that there is a solid argument to treat the lot as revenue. Possible difficulty with the wall thickening but since that was required to facilitate window installation (which should itself be revenue) I’d argue revenue.

Thanks (1)
17th Mar 2019 13:06

Agree with Wilson.

Suggest it be treated as revenue but provide warning to client that you are into shades of grey and it is a possibility HMRC might challenge and in those circumstances nothing can be guaranteed. Adopted that approach with clients for years and never a comeback.

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18th Mar 2019 09:01

I'd suggest the client reviews her insurance policy.

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