Repairs or improvements: the line landlords keep getting wrong
Five propositions landlords routinely believe about repairs and improvements, each tested against what HMRC's manuals and the legislation actually say. The entirety test, the modern equivalent rule, the derelict-property trap, the limits of Replacement of Domestic Items Relief and why the £1,000 property allowance can cost you money. With an illustrative comparison of two kitchens showing the cash difference in the year and the capital gains consequence later.
Capital spending is deferred relief, not lost relief
Section 33 of the Income Tax (Trading and Other Income) Act 2005 refuses a deduction for items of a capital nature, and section 272 carries that refusal into property business profits calculated under generally accepted accounting practice. So capital spending gets nothing against your rent, which is where most conversations stop. It should not. Section 38 of the Taxation of Chargeable Gains Act 1992 allows expenditure wholly and exclusively incurred on the asset for the purpose of enhancing its value, provided it is reflected in the state or nature of the asset when you dispose of it. Capital spending is relief postponed, not relief denied, and the real argument is about timing and rate rather than entitlement. Nor does the cash basis rescue you: it applies by default where cash basis receipts do not exceed GBP 150,000 and you have not elected out, and section 307B denies a deduction for capital items incurred on the provision or alteration of an asset for use in residential property, pointing you to replacement of domestic items relief.
Myth one: a new kitchen is automatically an improvement
The question is never whether what you installed is newer than what you took out. It is whether what you replaced was an asset in its own right or merely part of a larger one. HMRC calls this identifying the entirety, and its Business Income Manual examples are unusually helpful. Where a landlord strips out a dated fitted kitchen and installs units of equivalent quality, even in a different layout to accommodate a relocated boiler, the manual says the entirety is the house, not the kitchen, so the work is a repair and the cost allowable. Contrast the garage: a run-down one knocked down and rebuilt is not repaired but replaced, and the whole cost is capital even where rebuilding was the cheapest and most effective course. A holiday chalet replaced with the same model goes the same way. Draw the boundary of the asset before you open a single invoice. Free-standing structures tend to be entireties; things fitted inside a building tend not to be.
Myth two: if the replacement is better, the cost must be capital
This is the costliest misunderstanding of the lot. HMRC's Property Income Manual accepts that modern materials may give an apparent element of improvement through greater durability or superior qualities, yet treats the cost as revenue where the new materials are broadly equivalent to the old. Wooden beams replaced by steel girders, lead pipes replaced by copper or plastic: still repairs. Alterations from advances in technology go the same way if functionality and character stay broadly the same. The Business Income Manual records that replacing single glazing with double glazing was once an improvement, that double glazing became the industry norm, and that the work then became allowable as replacing like with currently available like. So the answer can depend on when the work was done: something accepted as an improvement in year one may by year five be simply a repair. Where a significant improvement genuinely does arise from the change of materials, though, the whole cost is capital, including the redecoration afterwards.
Myth three: buying a wreck cheaply generates a big first-year repair claim
It generally does the opposite. The Property Income Manual treats the cost of refurbishing or repairing a property bought in a derelict or run-down state as capital, on the stated principle that buying a property in good condition is clearly capital expenditure, so buying a dilapidated one and putting it in good order is capital too. The discriminator drawn from the case law is the price. In Law Shipping the purchase price of the ship was substantially less than it would have been in a fit state of repair, and the works were capital. In Odeon Associated Theatres the price had not been reduced to reflect the poor condition of the cinemas, which were operated for years before the work was done, so the expenditure was allowable. A deduction is not denied, HMRC adds, where the price merely reflects reduced value from normal wear and tear. The particulars, the survey and the price you paid against local comparables are your evidence, and they cut both ways.
Myth four: Replacement of Domestic Items Relief covers whatever you put in the house
It is narrower than most landlords think. The relief sits in section 311A of the 2005 Act and applies to expenditure incurred since 6 April 2016. Four conditions must be met: a property business letting a dwelling-house; an old domestic item replaced and no longer available there; expenditure that would otherwise be barred as capital; and no capital allowances claimed. A domestic item means furniture, furnishings, household appliances and kitchenware, and expressly excludes a fixture, which the section defines to include boilers and water-filled radiators in a heating system. There must be an old item, so the first provision of anything falls outside the relief. If the replacement is not substantially the same, the deduction is capped at what a like-for-like replacement would have cost. And anything you receive for the old item is netted off. What most people miss is that a fixture falling outside the relief is not bad news: HMRC treats items integral to the building, such as baths, washbasins and toilets, as replaceable as a repair, provided you are not replacing an entirety.
Myth five: the GBP 1,000 property allowance is a bonus on top
It is an alternative, not an addition, and treating it as a freebie is expensive. The allowance has been GBP 1,000 since 6 April 2017 and sits in Part 6A of the 2005 Act. If your property receipts do not exceed GBP 1,000 you get full relief, the income is simply not charged, and there is no obligation to notify HMRC of a new source. Above that, you may choose to subtract the GBP 1,000 from total receipts instead of your actual expenses, and HMRC's manual is explicit that you cannot also deduct any expenses that would otherwise be allowable. So a landlord with GBP 9,000 of rent who spent GBP 4,000 on genuine repairs and then claims the allowance has swapped a GBP 4,000 deduction for a GBP 1,000 one. The allowance earns its place where costs are genuinely tiny, and almost nowhere else.
An illustrative comparison of two kitchens, with the arithmetic
This example is illustrative, not based on any client. Two higher-rate taxpaying landlords each spend GBP 18,000 on a kitchen in the year to 5 April 2027. Landlord A replaces a twenty-year-old fitted kitchen with a modern equivalent of similar standard in the same footprint. On HMRC's own analysis that is a repair, so GBP 18,000 comes off rental profit and, at 40 per cent, saves GBP 7,200 of income tax in 2026/27. Landlord B spends the same but takes the wall through to the dining room, doubles the run of units and adds an island. That is an alteration, so nothing is deductible in the year and the whole GBP 18,000 goes into base cost, assuming it is still reflected in the property on sale. Sell twelve years later, holding today's rates constant, with gains above the GBP 3,000 annual exempt amount and taxed at the 24 per cent residential rate, and the relief is worth GBP 4,320. The difference in the year is GBP 7,200 of cash; over the whole life, GBP 2,880. From 6 April 2027 the gap widens: section 7 of the Finance Act 2026 sets the property higher rate at 42 per cent, making the same deduction worth GBP 7,560.
The invoice wording and the photographs decide it, and almost nobody keeps them
These arguments are lost on evidence, not on law. HMRC tells its inspectors that the evidence may include the contractor's estimate and any written instructions setting out what work was to be done, so a builder's invoice reading refurbishment of kitchen and bathroom is worse than useless. Ask instead for an itemised description: what was removed, what replaced it, that the footprint was unchanged and the specification equivalent, with any separate improvement priced on its own line. Take dated photographs at each stage, and keep the tenancy history: whether the property was let before the works began can decide the derelict-purchase question. Three questions for your accountant: is the asset the building or something separate; did the price reflect the disrepair; and is any part of the bill separately identifiable as a repair. On dates, the 2026/27 return and balancing payment fall due on 31 January 2028, a UK residential disposal must be reported and paid within 60 days of completion, and if your 2024/25 qualifying income exceeded GBP 50,000 you have been inside Making Tax Digital for Income Tax since 6 April 2026, with cumulative quarterly updates due on 7 August, 7 November, 7 February and 7 May. Keep records five years past that deadline, and capital records while you own the property.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.