Tax on Landlord Renovation & Repair Costs UK 2026 — HMRC Rules Explained

Repairs and maintenance — what is allowable

Revenue expenditure on repairs and maintenance is deductible against rental income in the tax year in which it is incurred:

• What counts as a repair: HMRC's Property Income manual lists examples of allowable repair expenditure: painting and decorating (internal and external); repairing guttering, downpipes, and roof tiles; fixing a leaking roof (not replacing the entire roof where not previously defective); repairing or replacing a broken boiler (like-for-like replacement); pest control; servicing electrical systems, gas appliances, and heating; replacing broken windows (like-for-like); repointing brickwork; and garden maintenance (cutting lawns, maintaining hedges)
• The 'entirety' principle: Where an asset has become so deteriorated that it must be entirely replaced, the replacement may still be a repair — even if modern materials mean the replacement is technically superior (e.g., replacing Victorian cast-iron pipes with modern plastic ones). The asset replaced must be the 'entirety' — replacing a whole roof that has become structurally unsound is a repair to the entirety, even though the cost is large. Replacing part of a roof (e.g., some tiles) is self-evidently a repair. The distinction becomes more complex for kitchens and bathrooms
• Kitchens and bathrooms: HMRC accepts that replacing an entire fitted kitchen or bathroom suite with a modern equivalent (same layout, similar quality) can be a repair to the entirety — particularly where the existing kitchen or bathroom is fully worn out. Where the replacement involves a significant upgrade in quality or a change in layout (e.g., removing a wall to create an open-plan kitchen-diner), the expenditure or the improvement element is likely to be capital. Detailed records — photos before and after, contractor invoices specifying work done — are essential
• Maintenance and servicing: Annual gas safety checks (mandatory by law), boiler servicing, electrical installation condition reports (EICR), and similar regular servicing costs are allowable revenue expenses. These are maintenance costs incurred to keep the property in working order, not improvements
• Incidental costs: Professional fees directly related to repair work (architect fees for drawing up repair specifications, surveyor fees for investigating a leak) are allowable as part of the repair cost. Legal fees relating to a specific piece of repair work may also be allowable if the repair itself is allowable

Capital improvements — what is not allowable against income

Capital expenditure increases the value of the property or changes its character — it is not deductible against rental income:

• What counts as capital expenditure: Adding rooms or extensions (loft conversions, extensions, conservatories); converting a garage into habitable space; installing central heating or air conditioning where there was none before; adding double glazing to a property that has never had it; rewiring a property that has not previously been wired to modern standards (but maintaining existing wiring is a repair); adding insulation (e.g., cavity wall or loft insulation) where none existed; and landscaping to create features that did not previously exist (patios, garden rooms, water features)
• Enhancement expenditure for CGT: Capital expenditure that is 'wholly and exclusively' incurred in improving the property — and that is still reflected in the state of the property at the time of disposal — is allowable as a deduction against the capital gain when the property is sold. HMRC allows this as 'enhancement expenditure' under Section 38 TCGA 1992. Landlords should keep detailed records of all capital expenditure, with invoices, contracts, and planning permissions, so that it can be claimed against CGT on disposal
• Improvement element within a mixed repair/improvement job: Where a single piece of work involves both repair (allowable) and improvement (capital), the cost must be apportioned. For example, replacing a flat felt roof with a tiled pitched roof — the cost of restoring the waterproofing function of the roof is a repair, but any additional cost attributable to the change from flat to pitched is capital. The apportionment should be based on the contractor's quotes for like-for-like replacement (repair element) versus the additional cost of the improvement
• Initial repairs — the 'before and after' rule: Where a landlord purchases a property in a dilapidated condition below market value (specifically because of the disrepair) and then carries out substantial repairs before letting it, HMRC may treat those initial repairs as capital — on the basis that the property was acquired at a price that already reflected the cost of the repairs (the 'Odeon Theatres' principle). This is a significant risk for landlords who buy distressed properties for refurbishment. Pre-letting repairs are discussed further below
• Landlord's own labour: HMRC does not allow a deduction for the value of the landlord's own time or labour. Only cash expenditure on third-party contractors or materials is deductible. A landlord who personally decorates, repairs, or maintains the property cannot deduct the commercial value of their time

Replacement Domestic Items Relief (RDIR)

RDIR allows landlords to deduct the cost of replacing domestic items in fully furnished and unfurnished lets:

• What RDIR covers: From 6 April 2016, landlords can claim Replacement Domestic Items Relief on the cost of replacing domestic items in the let property — including: furniture (sofas, beds, wardrobes, tables, chairs); kitchen appliances (fridges, washing machines, ovens, dishwashers); carpets and other floor coverings; curtains and blinds; crockery and cutlery; and white goods. RDIR replaced the previous 10% wear-and-tear allowance (which was only available for furnished lets)
• RDIR applies to all lets — not just furnished: Unlike the old wear-and-tear allowance, RDIR is not limited to fully furnished lets. It applies to any residential let where domestic items are replaced — including unfurnished lets where the landlord provides appliances (fridge, oven) but not furniture
• Amount of the deduction: The deduction is limited to the cost of a like-for-like replacement — the cost of a modern equivalent of the same type and quality as the item replaced. If the landlord upgrades (e.g., replaces a basic fridge with an American-style fridge-freezer), the deduction is limited to the cost of a basic fridge. Any additional cost of the upgrade is not deductible under RDIR. Disposal costs (e.g., skip hire to remove the old item) can also be included
• Conditions for RDIR: The relief applies only where: (a) the property is a residential let (not a holiday let or commercial let); (b) the old item is no longer available for use in the property (it has been discarded or given away — not stored in the garage); (c) the replacement item is for use in the same property; and (d) the capital allowance rules do not otherwise apply (capital allowances on residential property are generally not available — this condition is almost always satisfied for residential landlords)
• First purchase of domestic items: RDIR applies only to replacement of an existing domestic item — not to the first-ever purchase of an item for the property. A landlord who furnishes a property for the first time cannot claim RDIR on those initial purchases. Initial purchases are capital expenditure and form part of the cost base for CGT. This is why furnished and unfurnished lets are treated similarly under RDIR — the first-time furnishing is capital regardless

VAT on renovation and repair works

VAT treatment of renovation and repair work depends on the type of work and the property's history:

• Standard 20% VAT — routine repairs and maintenance: Most routine repair and maintenance work on residential let property (plumbing, electrical, decorating, roof repairs, general maintenance) is subject to the standard 20% VAT rate. Residential landlords cannot generally reclaim this VAT because residential lettings are exempt supplies for VAT purposes — VAT-registered contractors charge 20% and the landlord bears the cost as an irrecoverable expense
• 5% reduced rate — residential conversions: The 5% reduced rate of VAT applies to the conversion of a non-residential building to residential use (e.g., commercial-to-residential conversion, barn conversion). This significantly reduces the cost of larger conversion projects
• 5% reduced rate — properties empty for 2 years: Renovation and alteration works on a dwelling that has been empty for at least 2 years before the works begin also attract the 5% reduced rate of VAT. The contractor must be satisfied that the dwelling meets the 2-year vacancy criterion — typically evidenced by council tax records, utility bills, or a local authority certificate. This is relevant for landlords buying abandoned or long-vacant properties for renovation
• Zero-rated — first sale of new dwellings: The first sale of a newly constructed dwelling (or the long lease of a new dwelling) is zero-rated for VAT. This allows developers who sell new-build homes to recover input VAT on construction costs. Landlords who retain rather than sell converted or new-build residential units cannot use this route — they make exempt supplies (residential lets) and cannot recover input VAT
• VAT registration threshold and option to tax: Residential lettings are exempt from VAT — not taxable supplies. A landlord whose only income is from residential lettings cannot (and does not need to) register for VAT. VAT registration is only relevant where the landlord also makes taxable supplies — e.g., commercial lettings (which can be opted into VAT), holiday lets (which are taxable at 20%), or where the landlord is selling new-build residential units (zero-rated)

Pre-letting and post-purchase expenditure

The timing of renovation expenditure relative to the start of letting matters for tax deductibility:

• Pre-letting expenses — general rule: Expenses incurred before the letting business starts (i.e., before the first tenant moves in, or before the property is first put on the market to let) are generally not deductible as revenue expenses. HMRC's position is that pre-letting expenditure is not 'wholly and exclusively' incurred for the purposes of the letting business — because the business has not yet started
• Exception — short period before first let: HMRC accepts that where expenditure is incurred shortly before the first letting of a property — and clearly with a view to letting — the expenditure may be deductible. HMRC's Property Income manual gives examples: cleaning costs immediately before the first tenant, or advertising costs for finding the first tenant. The 'short period' is not defined — it is a matter of fact and degree
• The 'Odeon Theatres' trap for acquired dilapidated properties: Where a landlord acquires a property at a below-market price specifically because of its poor condition, and then incurs substantial expenditure restoring it to a lettable state, HMRC may treat the expenditure as capital — not allowable revenue expenditure. The leading case (Law Shipping v IRC [1924]) established that expenditure incurred to put a defective asset into a working condition after acquisition is capital, not a repair. This applies even where the expenditure would otherwise look like repairs
• Post-purchase strategy for distressed properties: Landlords who buy distressed properties for renovation should: (a) obtain a detailed survey identifying the condition of each element at the time of purchase; (b) keep separate records of expenditure on pre-letting works; (c) take professional tax advice on the capital/revenue split before letting; and (d) be aware that the initial refurbishment costs may form part of the CGT cost base rather than reducing rental income tax
• Record-keeping — the landlord's most important protection: HMRC can enquire into landlord tax returns up to 4 years (or 6 years where there has been careless behaviour, or 20 years for fraud) after the end of the relevant tax year. Landlords should retain: all contractor invoices and receipts; photos of the property before and after works; surveyor reports; planning permissions and building regulations documents; council tax and utility records (for vacancy periods); and bank statements evidencing payment. Good records are the landlord's protection in any HMRC enquiry

Frequently asked questions