Sarah Bradford explains how to determine whether expenditure on replacing a roof is revenue or capital, and why it matters.
For tax purposes, all expenditure is not equal, and different rules apply to the treatment of capital expenditure and revenue expenditure.
Broadly, a landlord will be able to deduct revenue expenditure in calculating the taxable profits of their property business. By contrast, the treatment of capital expenditure is trickier. Depending on the nature of the expenditure and the type of letting and whether the accounts are prepared using the accruals basis or the cash basis, it may be possible to claim capital allowances, if the cash basis is used, to deduct the expenditure in accordance with the cash basis expenditure rules. Otherwise, relief will be given through the capital gains tax system as enhancement expenditure, reducing any gain on disposal.
While a homeowner may prefer
