Help settle disagreement with taxman!

MiM

My brother has a second home he rents out to a relative. The windows were rotten and needed replacing so he had double glazing fitted. They say it's a capital addition and can only be offset against future capital gains, not income tax. Surely that can't be right if it was essential? Any guidance much appreciated.

MJSW

Whether it is essential or not isn't really relevant. What matters is whether it is treated as capital or revenue expenditure, ie is it just a repair or an improvement to the property?

But you will be pleased to know that the taxman has got it wrong. It was previously the Revenue's policy that replacing, for example single glazed windows with PVC double glazed was an improvement and not a repair. However, they changed their policy a couple of years ago, and now accept that a replacement with double glazing is normally allowble as a repair.

You should point him in the direction of Tax Bulletin 59, which sets out their new policy. See http://www.inlandrevenue.gov.uk/bulletins/tb59.pdf (pages 935 and 936).

The key bit is:

"What we regard as a repair will necessarily change with the passage of time to reflect technological improvements. This issue was considered in the tax case Conn v Robins Brothers Ltd (43TC266). As a result we accept that the replacement of a part of the ‘entirety’ with the nearest modern equivalent is allowable as a repair for tax purposes and not disallowable as improvement expenditure.

An example is double-glazing. In the past we took the view that replacing single-glazed windows with double-glazed windows was an improvement and therefore capital expenditure. But times have changed. Building standards have improved and the types of replacement windows available from retailers have changed. We now accept that replacing single-glazed windows by double-glazed equivalents counts as allowable expenditure on repairs. Generally, if the replacement of a part of the ‘entirety’ is like for-like or the nearest modern equivalent, we accept the expenditure is allowable revenue expenditure."

MiM

Many, many thanks MJSU

My nieces will be able to eat now - and he might get his camera!