Tax Treatment for new and replacement kitchens

Question We recently bought a property for Buy-to-let. It needed a new kitchen before it could be let. We also had to redecorate throughout. Obviously we will have to redecorate again between each tenancy. Is the cost of original decoration offset against rental income, or CGT when we sell? Also, what if we have to put in another new kitchen before reselling? Can we claim the cost of 2 new kitchens against the CGT?

Answer

In short the first kitchen replacement would appear to be a capital expense and any subsequent kitchen replacements a revenue expense (i.e. can be offset against the rental income).

According to the Inland Revenue guidelines I believe that the first new kitchen is a capital expense, because the property was unable to be let out until the kitchen was replaced. Also a new kitchen is likely you have increased the value of a property. However the subsequent replacement kitchens are just reinstating a worn out or dilapidated asset, and therefore a revenue expense. The redecorating is a revenue expense as the inland revenue states that:

Examples of common repairs, which are normally deductible in computing rental business profits, include:

• • exterior and interior painting and decorating;
• • stone cleaning;
• • damp and rot treatment;
• • mending broken windows, doors, furniture and machines such as cookers or lifts;
• • repointing; and
• • replacing roof slates, flashing and gutters.

It would seem to me that a property can usually be let out even though it needs redecorating and therefore any costs incurred for re-decorating prior to and during lets can be offset against the rental income.