Tribunal: Capital expenditure can be ‘repairs’
The Tribunal has allowed a taxpayer’s appeal that capital expenditure on an ‘outbuilding’, adjacent to let premises, be treated as repairs rather than as improvements for tax purposes.
The taxpayer had income from property lettings and claimed £119,000 repairs as a deduction in his 2005/06 tax return. HMRC refused to accept that relief was due and said the amount claimed for repairs of an outbuilding was capital expenditure and therefore not allowable.
The taxpayer requested a review of the decision. The review upheld HMRC’s decision. It concluded:
- The outbuilding had been converted from storage to provide additional living, which required substantial capital expenditure.
- If the outbuilding had been put back into good repair and still used for storage, the expenditure might have been allowed as repairs.
- Plans and ‘before and after’ photographs showed different use after the work.
- The outbuilding was a separate building.
The taxpayer appealed and the Tribunal examined photographs of the outbuilding and judged that it had been in a dangerous state before the work. The judges looked at the architect’s plans and report, and concluded that the work undertaken was essential repairs. There was no evidence to support HMRC’s contention that after the building work there had been a change of use from games room and storage to additional accommodation.
Allowing the taxpayer’s appeal, the Tribunal decided that their decision was supported by the HMRC Manual at PIM 2020 and by the case of Conn v Robins Bros Ltd.