Are Home Improvements a Tax Deduction

Home improvements can be costly, but they may also enhance your property’s value or usefulness over time. Whether you're renovating a kitchen, adding a loft conversion, or installing energy-efficient systems, it’s natural to wonder whether these expenses can reduce your tax bill.

In the UK, home improvements are not usually a tax deduction for homeowners. However, there are exceptions depending on how you use the property and what kind of improvements are made. In some cases, improvements may reduce your Capital Gains Tax bill, qualify for relief if the property is let out, or be deducted against profits if the property is used partly for business.

This article explains the different tax rules around home improvements, when deductions apply, and how to keep records for future claims.

Are Home Improvements Tax Deductible for Your Own Home?

If you own and live in your home, you cannot deduct the cost of home improvements against your Income Tax or reduce your taxable income. HMRC does not allow deductions for personal living expenses, and this includes renovations or upgrades made to your own property.

For example, if you build an extension, replace a bathroom, or landscape your garden, these costs are not claimable in your Self Assessment tax return. They are classed as personal capital expenditure.

However, this does not mean the costs are irrelevant from a tax perspective. In certain circumstances, the money you spend on improving your home could help reduce a future Capital Gains Tax (CGT) bill if you sell the property and it does not qualify for full Private Residence Relief.

Home Improvements and Capital Gains Tax

Most people selling their main home do not pay Capital Gains Tax due to Private Residence Relief. But if the property has not been your only or main home throughout the entire period of ownership, or if part of it has been let or used for business, CGT may apply on the gain when you sell it.

When CGT is due, the cost of capital improvements (as opposed to repairs or maintenance) can be added to the base cost of the property, effectively reducing the taxable gain. These include:

• Adding a conservatory or extension

• Converting a loft or garage

• Installing a new kitchen or bathroom (if it's an upgrade, not a like-for-like replacement)

• Installing solar panels or central heating where none existed before

The distinction between an improvement and a repair is key. Improvements add value, change the function, or extend the life of the property. Repairs, on the other hand, restore the property to its original condition. Repairs are not deductible when selling your home.

You must keep receipts and records of all qualifying improvement costs to support any future CGT calculation. HMRC may challenge claims without evidence.

Letting a Property: Deductions and Improvements

If you let out a property as a landlord, different tax rules apply. When calculating your rental profits for Income Tax, you can deduct repairs and maintenance but not improvements.

This means you can deduct the cost of:

• Replacing broken windows

• Repairing roofs or gutters

• Repainting or replastering

• Replacing like-for-like fixtures (e.g. a damaged boiler or a faulty oven)

But you cannot deduct the cost of:

• Upgrading a kitchen to a higher standard than before

• Converting a loft into a bedroom

• Building an extension

• Installing something entirely new like underfloor heating

These improvements are instead capital in nature and may be deductible when calculating Capital Gains Tax if you sell the property later.

There is a grey area when replacements include modest upgrades. For example, replacing a basic kitchen with a modern equivalent may still be considered a repair, especially if it serves the same function. However, if the work significantly enhances the property, HMRC will treat it as capital expenditure.

To stay compliant, landlords should maintain detailed records and seek professional advice when in doubt.

Home Improvements for Business Use

If you run a business from home, it may be possible to claim a portion of your home-related expenses, but not usually for improvements. HMRC allows a deduction for costs that are wholly and exclusively for business purposes.

Common business-related home expenses include:

• A share of household bills like electricity, gas and broadband

• Council tax, if the area used for business is not also used for domestic purposes

• Rent or mortgage interest (proportionally)

• Repairs to the area used for business

However, improvements to your home do not usually qualify for deduction unless they are solely for business use, and even then, they can create complications.

For example, if you build a garden office used exclusively by your company, the cost might be claimed as a capital allowance by the company. But this may mean you lose Private Residence Relief on that part of the property when you sell your home.

In mixed-use situations, apportioning costs can be complex and is best done with advice from an accountant.

VAT on Home Improvements

Most home improvements are subject to VAT at the standard rate of 20 percent. However, there are situations where reduced rates apply, such as:

• Energy-saving materials (like insulation or solar panels) may be subject to 0 percent or 5 percent VAT

• Conversions of non-residential buildings to residential use may also qualify for a reduced rate

VAT rules are detailed and depend on the nature of the work and the status of the building. While VAT itself is not deductible for individuals, businesses registered for VAT may be able to reclaim it on qualifying improvements that are directly linked to business activity.

Keeping Records for the Future

Even if your improvements are not tax deductible today, it is essential to keep a record of all significant works carried out on the property, including:

• Invoices and receipts

• Builder’s contracts and quotes

• Planning permissions or building control documents

• Before and after photos

These will help support a future Capital Gains Tax claim, especially if the property is sold and part of the gain becomes taxable.

HMRC can request evidence going back several years, and without it, you may not be able to offset the cost of improvements when calculating gains.

Conclusion

Home improvements are not tax deductible in the UK for your main residence, and they cannot be used to reduce your Income Tax bill. However, they may reduce a future Capital Gains Tax charge if the property does not qualify for full Private Residence Relief.

For landlords, repairs are deductible from rental income, but improvements are not. These too may help reduce CGT later, but not Income Tax during ownership. For business owners working from home, improvements are rarely deductible unless used exclusively for business, and even then, the implications for CGT and property use must be carefully considered.

If you are investing in your property and want to ensure your costs are treated correctly for tax purposes, it is worth getting tailored advice. Understanding the rules now can help you maximise reliefs in future and avoid surprises when you eventually sell.