An expensive bill equivalent to a years rental has landed for upgrades to our rented out flat. Annoying to see 20% VAT on the bill, but which category to put the cost against for tax? Capital gains or as an expense against income? Thousands of small landlords must be asking this question.
It really depends exactly what the bill is for.
If they are genuinely upgrades, then the cost of a like for like replacement would be revenue (expensed against income) and the extra cost of the improvements would be capital.
If it is just replacing with the modern equivalent, then it would all be revenue.
If it is replacing cladding, for example, then I would claim it as revenue with the argument that there was cladding there and it has been replaced with a modern equivalent.
If you recently bought the property and got it more cheaply because it needed the cladding replaced, then I would say it was capital because the work needed was reflected in the price.
HMRC would probably argue it the way that suited them!
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That’s a good way of explaining it, Cath2!