'Will fixing my flat's dangerous cladding cut our tax bill?'
I co-own a rental flat with my son. Since the Grenfell Tower fire, it’s been recommended that the block replaces the cladding and the balconies, as these had wooden floors.
Can this cost of this work be used to reduce the capital gains tax we might owe when we come to sell the property?
John from Surrey
'Is this a running cost or improvement?'
Samm Galloway, Which? money expert, says…
HMRC doesn’t have a set list of allowable costs for capital gains tax purposes. However, it does have guidance around allowable expenditure.
Generally, improvement costs can be counted alongside expenses involved in acquiring and selling an asset, such as estate agents’ fees and the cost of a survey. However, your cladding work might not count as improvement, but rather as a revenue expense (running cost). This can’t be set against capital gains.
Your cladding work might not count as improvement, but rather as a running cost
Where the work carried out restores your property to what it originally was, replaces something with a standard fitting, or – as in your situation – replaces something because the existing setup is non-compliant, or to bring it up to the standards required by law, this would be categorised as revenue expenditure.
Using modern materials in the replacement may seem like an improvement. However, if these are performing the same function as what was originally there, HMRC would again deem this to be a revenue expense.
To qualify as a capital expense for the purposes of capital gains tax, either wholly or partially, the work carried out would need to involve improving or changing the function of part of the property – for example, by adding an extension.
- Find out more: Expenses and allowances landlords can claim
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