I’ve been helping a client with some capital gains calculations. They provided a breakdown of their property costs from their accountant and at first I was pretty impressed that they’d actually kept the details. On inspection though it became clear that the list of expenditure, kept solely for the purposes of working out the capital gain on disposal, included a lot of items that should really have been claimed against rental income.
I’ve raised the issue with the client as to be fair it isn’t always immediately clear in what context the spend occurred. It does raise an interesting issue though which I see a lot.
People ask me which is better – revenue (against rents) or capital (against future sale). The answer shocks a lot of people. You don’t get to decide! All expenditure is already one or the other. It is not a choice!
If you paint a wall during a void it is a revenue expense. If you add a conservatory it is a capital expense. Stand your fence back up after some winds and it’s a revenue expense. Add a false wall to split a large bedroom in two and it is capital. At the point of spend the answer is already there. It is not for you to decide.
The decision you do have is what you do. If you want all expenditure to be allowable against rents, and normally more valuable in tax relief terms, then don’t do capital works. That said tax should not be the reason to do something. If a property needs capital spend then you should do it!