What Is the Difference Between Repairs and Improvements for Tax

At Towerstone Accountants we provide specialist property accountant services for landlords property investors and individuals dealing with property tax and reporting obligations across the UK. This article has been written to explain What is the difference between repairs and improvements for tax in clear practical terms so you understand how the rules apply in real situations. Our aim is to help you make informed decisions avoid costly mistakes and know when professional advice is worthwhile.

This is one of the most important distinctions in UK property tax and also one of the most frequently misunderstood. I see landlords and business owners claim costs in good faith, only to discover later that HMRC views those costs very differently. The result can be unexpected tax bills, amended returns, and penalties that feel harsh even though the mistake was innocent.

In this article, I am going to explain clearly the difference between repairs and improvements for tax purposes, why HMRC draws such a firm line between the two, and how you can decide where a cost sits in practice. I will focus mainly on property because that is where the issue arises most often, but the principles apply more widely to business assets as well.

Everything here reflects current UK rules as applied by HMRC and set out in guidance on GOV.UK, explained in plain English rather than legislation.

Why the Repairs vs Improvements Distinction Matters

The reason this distinction matters is simple.

Repairs are usually allowable as a deduction against income

Improvements are not deducted from income but are treated as capital costs

That single difference affects:

Your taxable profit

The timing of tax relief

Your cash flow

Your capital gains tax position later on

Get it right and the tax treatment flows naturally. Get it wrong and HMRC will correct it, often years later.

The Core Principle HMRC Uses

HMRC’s starting point is not how much you spent or whether the work feels necessary.

The core question is:

Does the work put the asset back into its original condition or does it make it better than it was before?

If it restores, it is usually a repair.
If it improves, it is usually capital.

That sounds simple, but the detail is where people struggle.

What HMRC Means by a Repair

A repair is work done to:

Fix wear and tear

Restore functionality

Maintain the asset in a usable condition

Repairs do not change the character of the asset. They keep it going.

In property terms, repairs are about maintaining what is already there, not upgrading it beyond its original state.

Common Examples of Repairs

Typical repair costs include:

Fixing a leaking roof

Replacing broken tiles like for like

Repairing gutters and downpipes

Repainting walls in the same finish

Replacing damaged floorboards

Repairing boilers or heating systems

Mending windows or doors

These costs arise because things wear out or break over time. HMRC generally accepts them as revenue expenses.

What HMRC Means by an Improvement

An improvement is work that:

Enhances the asset

Changes its nature

Increases its value beyond the original condition

Adds something that was not there before

Improvements are capital in nature. They are treated as part of the cost of the asset itself.

You do not get income tax relief immediately, but the cost may reduce capital gains tax when the asset is sold.

Common Examples of Improvements

Typical improvements include:

Adding an extension

Converting a loft or garage

Installing a new bathroom where none existed

Upgrading single glazing to double glazing in some cases

Adding central heating where there was none

Reconfiguring layout to add bedrooms

Installing high-end upgrades that go beyond replacement

These works change the property rather than maintain it.

Like for Like Replacement and Modern Materials

One of the biggest areas of confusion is modernisation.

HMRC recognises that materials change over time. Replacing something with a modern equivalent does not automatically make it an improvement.

For example:

Replacing wooden windows with uPVC

Replacing lead pipes with copper or plastic

Replacing an old boiler with a modern efficient one

If the modern replacement simply performs the same function and reflects current standards, HMRC usually treats this as a repair.

The key is function, not age or efficiency.

When Modernisation Becomes an Improvement

Modernisation crosses into improvement territory when it goes beyond replacement.

For example:

Replacing basic units with luxury fittings

Upgrading finishes well beyond the original standard

Adding new features rather than replacing existing ones

Replacing a basic bathroom with another basic bathroom is likely a repair. Replacing it with a high-spec spa-style bathroom may be partly an improvement.

In mixed cases, apportionment is often required.

Initial Repairs and the Big Trap

One of the most common mistakes landlords make relates to initial repairs.

If you buy a property in poor condition and then spend money putting it into a lettable state, HMRC often treats those costs as capital.

This applies where:

The property was not in a rentable condition at purchase

The work was needed before letting could begin

The cost was reflected in a reduced purchase price

Even though the work looks like repair work, HMRC may treat it as part of the cost of acquiring the property.

Why Initial Repairs Are Often Capital

HMRC’s reasoning is that:

You bought the property knowing work was required

The price you paid reflected its poor condition

The work created a usable income-producing asset

In HMRC’s view, that work is part of the investment, not ongoing maintenance.

This catches many new landlords out.

Repairs During Ownership Are Different

Once a property has been let and is in use, repairs to maintain it are generally allowable.

For example:

Replacing worn carpets after tenants move out

Fixing wear caused by occupation

Ongoing maintenance year after year

Timing and context matter just as much as the nature of the work itself.

Mixed Repair and Improvement Projects

Many projects include both repair and improvement elements.

For example:

Replacing a roof and adding insulation

Refitting a kitchen with upgraded units

Renovating a bathroom and adding extra features

In these cases, HMRC expects a reasonable split.

The repair element may be deductible

The improvement element is capital

You should not automatically treat the whole cost one way or the other.

How to Apportion Mixed Costs

Apportionment should be:

Reasonable

Consistent

Based on evidence where possible

This might involve:

Contractor invoices with separate line items

Estimates of cost for different elements

Professional judgement supported by notes

HMRC does not expect perfection, but they do expect logic.

Repairs vs Improvements for Capital Gains Tax

While improvements are not deductible against income, they are not wasted.

Capital improvements usually:

Increase the base cost of the property

Reduce the capital gain when sold

Lower the eventual capital gains tax bill

Repairs, on the other hand, are not added to base cost because relief has already been given against income.

This is why double counting is not allowed.

Repairs vs Improvements for Businesses Beyond Property

The same principles apply to business assets.

For example:

Repairing machinery is usually deductible

Upgrading machinery beyond its original capacity is capital

Servicing vehicles is revenue

Buying a new vehicle is capital

The underlying logic is the same across all assets.

VAT Treatment Follows the Same Logic

VAT treatment often mirrors the income tax position, but not always.

In general:

VAT on repairs may be reclaimable if the business is VAT registered and making taxable supplies

VAT on capital improvements may still be reclaimable, depending on use

Property VAT rules add another layer of complexity and often require specialist advice.

Common Mistakes I See in Practice

Some of the most frequent errors include:

Treating all refurbishment as repairs

Ignoring initial repair rules

Claiming luxury upgrades as revenue

Failing to split mixed projects

Relying on how the invoice is worded

Assuming necessary work is always deductible

None of these mistakes are unusual, but HMRC will still correct them.

What HMRC Looks At in an Enquiry

When HMRC reviews repair and improvement claims, they often consider:

The condition of the asset at purchase

The timing of the work

The nature of the work

Whether the asset was usable beforehand

The scale of the spend relative to value

They look at substance over labels.

Calling something a repair on an invoice does not make it one for tax.

How to Protect Yourself

The best protection is clarity and documentation.

I always recommend:

Keeping detailed invoices

Making notes about why work was done

Recording the condition of the asset before work

Separating repair and improvement costs where possible

Being consistent year to year

Good records make HMRC discussions far easier.

Practical Property Examples

Replacing broken roof tiles with similar tiles is a repair.
Replacing an entire roof because it has reached the end of its life is usually a repair.
Replacing a roof and adding an extra storey is an improvement.

Fixing an old kitchen by replacing damaged units like for like is a repair.
Installing a brand new kitchen where none existed is an improvement.

Repainting due to wear is a repair.
Redecorating as part of a major upgrade may be capital.

Why Judgement Is Often Required

There is no single checklist that works in every case.

Two projects that look similar on the surface can have different tax outcomes depending on:

Timing

Scale

Intention

Previous condition

This is why blanket rules are dangerous.

When I Strongly Recommend Professional Advice

I strongly recommend advice if:

The spend is significant

A property was bought in poor condition

A major refurbishment is planned

There is a mix of repair and improvement

HMRC has queried past claims

The cost of advice is usually small compared to the tax at risk.

Practical Summary

In practical terms:

Repairs maintain an asset and are usually deductible

Improvements enhance an asset and are capital

Initial repairs are often capital

Like for like replacement is usually a repair

Mixed projects should be apportioned

Improvements may reduce capital gains tax later

Final Thoughts

The difference between repairs and improvements for tax is not about semantics. It is about how HMRC views the nature of your spending and when tax relief should be given.

My advice is always to slow down before claiming. Ask what the work actually did to the asset, not just why it felt necessary. If the work restored what was already there, it is likely a repair. If it made the asset better, bigger, or more valuable, it is likely an improvement.

Getting this right each year avoids painful corrections later and gives you confidence that your tax position will stand up if HMRC ever looks more closely.

You may also find our guidance on What expenses can landlords claim against tax and What counts as a furnished holiday let for HMRC useful when exploring related property tax questions. For a broader overview of property tax reporting and planning topics you can visit our property hub which brings all related guidance together.