Splitting large bedrooms in two, or carving out an en-suite in the corner of a large bathroom, is a great way to add rental value to a property.
In fact many landlords specifically buy properties where this is an option and in with their initial works a good proportion of their spend is for this.
The problem comes in where the expense is relieved. All businesses, including a property business, need to split spend between revenue and capital expenditure. Revenue expenses are allowed against rental income but capital expenditure is put aside and only allowable against the final sale of the property.
Because works on houses can get complicated the allocation of spend can also be complicated and over the years there has been a lot of case law settling the position on different works. Rest assured though as soon as you move, build or remove a wall you definitely have capital expenditure and should not be claiming all of your refurb costs against rental income.
If this is a new concept to you maybe your tax advisor is simply a form filler. HMRC loved spotting this during enquiries because it’s never been easier. Social media posts are full of “converting a 3 bed into a 4 bed” style posts. Once the new 5,000 compliance officers settle in a lot of landlords will be getting a knock on their newly moved doors!