What Is the Difference Between Repairs and Improvements for Tax

Introduction

Property owners and landlords often incur costs to maintain or upgrade their properties. While both types of work may seem similar, the tax treatment is very different.

Repairs are maintenance costs that keep the property in good condition and are deductible against rental income immediately.

Improvements increase the property’s value or extend its lifespan and are treated as capital expenses, which can only be claimed when you sell the property as part of your Capital Gains Tax (CGT) calculation.

Knowing the difference ensures you claim all the deductions you are entitled to without triggering a challenge from HMRC.

What HMRC defines as a repair

A repair restores a property or asset to its original condition without significantly enhancing its value or performance.

Repairs are revenue expenses, meaning they are tax deductible in the year they are incurred. You can offset these costs against your rental income to reduce your Income Tax liability.

Examples of repairs

Repainting walls and ceilings.

Fixing a broken window or replacing damaged tiles.

Replacing worn carpets or broken doors with similar materials.

Mending roof leaks or gutters.

Repairing plumbing, wiring, or heating systems.

Replacing single-glazed windows with double glazing if it is a modern equivalent rather than an upgrade.

In each of these cases, the work simply restores the property to its previous state rather than enhancing it beyond what was originally there.

Example

You replace a leaking roof with new materials of a similar type. The work restores the roof’s condition but does not make it better than before. HMRC would treat this as a repair, and the cost is deductible against your rental income for that year.

What HMRC defines as an improvement

An improvement goes beyond repairing damage. It adds value, extends the property’s life, or enhances its usefulness beyond the original condition.

Improvements are capital expenses, which means you cannot deduct them from rental income. Instead, they can reduce your Capital Gains Tax when you sell the property.

Examples of improvements

Building an extension, conservatory, or loft conversion.

Adding a new bathroom or installing a modern kitchen that significantly upgrades the property.

Converting a garage into living space.

Upgrading central heating to a new system or adding underfloor heating.

Replacing standard windows with premium triple glazing that enhances the property’s efficiency beyond its original specification.

These projects improve the property’s value or extend its life, so HMRC classifies them as capital expenditure.

Example

You replace an outdated kitchen with a new, high-end design that increases the property’s value. This is not a like-for-like replacement, so HMRC would treat it as an improvement. You cannot deduct the cost from rental income, but it will reduce your taxable gain when you sell the property.

Borderline cases

Some works include elements of both repair and improvement. For example, replacing part of a roof may be considered a repair, but replacing the entire roof with superior materials could count as an improvement.

In these cases, HMRC may require you to apportion the cost between repairs (deductible) and improvements (capital).

For instance:

Replacing damaged flooring with similar materials is a repair.

Upgrading to luxury hardwood floors throughout the property is likely to be treated as an improvement.

If in doubt, record the reasoning behind your decision and keep supporting evidence, such as quotes and invoices showing the nature of the work.

Replacement of domestic items relief

Since the removal of the old wear-and-tear allowance, landlords can now claim the replacement of domestic items relief for furnished rental properties.

This allows you to deduct the cost of replacing furniture or appliances, provided the new item is a like-for-like replacement and not an upgrade.

You can claim relief for:

Beds, sofas, and tables.

White goods such as fridges and washing machines.

Curtains, carpets, and kitchenware.

If the replacement is a higher-quality item, you can only claim the cost of an equivalent item, not the full amount paid.

How repairs and improvements affect Capital Gains Tax

When you eventually sell a property, any capital improvements you made can reduce the taxable gain. You add the cost of improvements to your purchase price when calculating your gain.

Example

You bought a property for £200,000 and sold it later for £300,000. You spent £25,000 on a loft conversion.
Your taxable gain is £300,000 (£200,000 + £25,000) = £75,000.

By recording capital improvements accurately, you ensure you pay CGT only on genuine profits.

Repairs, on the other hand, cannot be added to the purchase cost for CGT purposes because they are already deducted as revenue expenses.

Record keeping

HMRC requires landlords and property owners to keep clear records of all property-related expenses, including invoices, receipts, and correspondence. These records should show whether work was carried out to repair, maintain, or improve the property.

You should keep:

Invoices and receipts showing the type of work done.

Written descriptions or contracts from contractors.

Photographs showing the property before and after the work.

Evidence of payments (bank statements or card receipts).

Records must be kept for at least five years after the Self Assessment filing deadline. For CGT purposes, keep them for as long as you own the property plus an additional year after selling it.

Common mistakes to avoid

Treating all property work as repairs when it includes improvements.

Forgetting to keep evidence showing the property’s condition before repairs.

Upgrading fixtures and claiming the full cost as an expense.

Confusing replacement of domestic items relief with repairs.

Example scenario

David owns a rental property that needs attention. He spends £2,000 repainting the interior, £5,000 repairing the roof, and £10,000 installing a new kitchen.

The repainting and roof work are repairs, deductible from his rental income for the current tax year. The new kitchen is a capital improvement, so he cannot claim it now but can use it to reduce his CGT when he sells the property.

By separating repairs from improvements, David ensures he pays the correct amount of tax while maximising allowable deductions.

Conclusion

The key difference between repairs and improvements for tax purposes is whether the work restores the property to its original state or enhances it beyond what it was. Repairs are revenue expenses and reduce your rental income tax immediately, while improvements are capital expenses that reduce future Capital Gains Tax.

Understanding how HMRC distinguishes between the two helps landlords and property owners claim legitimate deductions and avoid errors. Keeping accurate records and, where necessary, seeking professional advice ensures your tax returns are accurate and compliant while minimising your tax liability.