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bigduckontax, Accountant
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We have a client who lets out a studio but has recently

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We have a client who lets out a studio but has recently stopped renting it out as there some repairs that needed to be done to it. Some of the expenses were for restoring the studio to its previous condition. However, some of the expenses were paid out to improve the studio as the landlord wants to shortly let it out again. What are the allowable expenses he can offset in his rental income and expenditure account? For example, he spent about £12,000 on a new roof because the previous one was leaking, about £4,000 on a skylight and about £8,000 on a new worktop.
Kind regards

Hello, Paul, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Repairs can be offset against rental income, but improvements would, in the end, be used to enhance the acquisition value for Capital Gains Tax (CGT) purposes on ultimate disposal.

Our Club room needed a new roof. Our Honorary Auditor was a Price Waterhouse man so he consulted PW's Tax Experts and their opinion was that as the Club had always had a roof its replacement was revenue expenditure. We put it through as that and the Inland Revenue, as they were then, did not bat an eyelid. So I would suggest that the 12K on the roof goes against revenue and the 4K and 8K constitute improvements.

I do hope that you have found my reply of assistance.

Customer: replied 1 year ago.
Thanks Keith. I understand so the £4,000 for the skylight and £8,000 for the new worktop will be offset against the disposal proceeds once the property is sold and thus reducing the Capital Gains Tax liability.

Of course HMRC might rule the 12K as an improvement also, but I am only quoting how we did it way back on very good professional advice from what is now PWC.

Please be so kind as to rate me before you leave the Just Answer site.

Customer: replied 1 year ago.
Sorry Keith. Just one more thing. There were also capital items purchased such as a sofa bed, fridge, dishwasher and oven which are obviously not revenue expenditure that can be offset against rental income in the rental income and expenditure account. However, can these items also be classed as improvements and be said to enhance the acquisition value for Capital Gains Tax purposes on disposal? Is it also the same treatment for installing lighting in the studio?

These would be classified as plant and machinery, in taxation the definition is very wide. Accordingly they would be capital allowance items and under current rules would be written off at 100% against profits as part of what is called the Annual Investment Allowance (AIA).

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Customer: replied 1 year ago.
Ok thanks.It is really much appreciated.

Delighted to have been of assistance.

Thank you for your support.

And your kind bonus.