Normally, improvement work carried out on a let property is capital expenditure.
This means it cannot be claimed as a reduction from rental income to arrive at the taxable rental profit for tax purposes. Any tax relief for the costs is obtained when you sell the property, the improvement costs reducing the amount of Capital Gains Tax payable.
There is a ‘green’ exception to this general rule. The exception applies until 6 April 2015. A landlord can spend up to a total of £1,500 per rental property on the following improvements and claim the costs as a deduction from rental income:
- Installing loft insulation
- Cavity wall insulation
- Hot water system insulation
- Draught proofing
- Solid wall insulation
- Floor insulation
For joint owners of a property, the £1,500 is shared between the owners. The relief also applies to costs incurred six months before the letting commenced.
The advantage of carrying out this work is that it will give you or your tenants lower energy bills, making the property a more attractive let.
Unfortunately, holiday letting properties and ‘rent a room’ properties do not qualify for this relief.