Landlord Repairs vs Capital Improvements: Tax Treatment

Why the Distinction Matters

Repairs are fully deductible against your rental income in the year they are incurred. Capital improvements are not deductible against rental income — but they can reduce your Capital Gains Tax bill when you sell the property.

The difference can affect your tax bill by hundreds or thousands of pounds.

What Counts as a Repair?

A repair restores the property to its previous condition. It does not enhance or improve the property beyond what was there before. Examples:

• Fixing a leaking roof
• Replacing broken windows with similar ones
• Repainting walls and ceilings
• Fixing plumbing leaks
• Replacing a broken boiler with a similar model
• Repairing damaged flooring
• Fixing electrical faults
• Replastering walls
• Unblocking drains

What Counts as a Capital Improvement?

An improvement enhances the property beyond its previous state. Examples:

• Adding an extension
• Converting a loft or garage
• Installing a new bathroom where there was not one before
• Upgrading single glazing to double glazing
• Adding central heating to a property without it
• Building a conservatory
• Installing a new kitchen that is of a significantly higher standard

The Grey Areas

Some work falls into a grey area. HMRC guidance helps:

Like-for-Like Replacement

Replacing an old item with a modern equivalent is generally a repair, even if the modern version is technically "better" due to technological progress. Replacing an old boiler with a modern condensing boiler is a repair — you are simply getting the nearest modern equivalent.

Improvement Disguised as Repair

If you replace a basic kitchen with a luxury kitchen, the cost of a basic equivalent is a repair, and the excess is an improvement. In practice, most landlords claim the full cost as a repair if the replacement is reasonable and functional rather than a luxury upgrade.

First-Time Fixes in a New Purchase

If you buy a property in poor condition and carry out work to bring it up to a lettable standard before the first tenancy, HMRC may treat this as capital expenditure — you are not "repairing" the property (because it was never in good condition under your ownership), you are improving it for letting.

However, if you buy a property that was in reasonable condition and make minor repairs, these are deductible.

Record Keeping

For every piece of work, keep:

• Invoices and receipts
• A description of the work done
• Photographs (before and after, if helpful)
• A note of whether you are treating it as a repair or improvement

If HMRC queries your deductions, clear records are your best defence.

CGT Benefit of Improvements

While improvements are not deductible against rental income, they are added to your property's base cost for CGT purposes. When you sell, you deduct the improvement costs from your gain:

Sale price - (purchase price + purchase costs + improvement costs + selling costs) = chargeable gain

Keep records of all improvement costs — even from years ago — as they will reduce your CGT when you eventually sell.

Track repairs and improvements separately with Accounted for correct tax treatment.

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