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Repairs Tax Case Review

Repairs of Listed Building

Wills (Christopher) V HMRC Commissioners [2010] UKFTT 174 (TC)

Tribunal Release Date: 16th April 2010


The taxpayer renovated an outbuilding to a residential rental property.  He successfully claimed a tax deduction from rental income for the cost of repairs.


The taxpayer spent about £107,000 renovating an approximately 200 year old outbuilding to a listed residential rental property that the taxpayer had owned for around 30 years.  The outbuilding had been used for storage, as a games’ room and additional living space, and a car had sometimes been garaged there.  The building had become run down and damp.  Indeed it risked collapsing. 


Because the property was listed the only option was a ‘substantial repair scheme’.  This involved shoring up the structure, grouting, pointing, decorating and replacing windows, doors and roof (keeping exactly to the previous external design, apart from a change to the size of a door).  Although the materials and methods used were kept close to traditional techniques wherever possible, a modern approach was followed to make the outbuilding safe and structurally sound.  The interior was also brought more up to date, including adding a water supply, heating and electric power points (but no thermal insulation, kitchen, toilets, basins or anything that would allow the space to be anything more than additional living space to the main house).  In effect, the difference after the repairs was that there was dry storage all year round, instead of damp storage, as previously.


The taxpayer claimed a ‘revenue’ tax deduction from rental income of around £44,000 (41% of the expenditure) and capitalised the £63,000 (59%) balance.  HM Revenue & Customs (HMRC’) disagreed, contending that the work was a wider ‘capital’ scheme to convert the outbuilding into additional living space.  HMRC argued that the scale of the work went beyond repairing what was there before and changed the character of the building.  Therefore, all of the expenditure was capital and none of the cost qualified as an allowable revenue tax deduction against the letting income.


Relevant Law/ Practice

A 100% tax deduction is available for revenue expenditure incurred on repairs and maintenance works, as long as those costs have been charged immediately to the profit and loss account.  In HMRC's view, where revenue expenditure has been capitalised or ‘deferred’ (ie, recorded as a fixed asset on the balance sheet) then a tax deduction is only available when that expenditure is expensed through (ie, charged to) the profit and loss account. Therefore, the tax deduction follows the depreciation rate in the accounts.


Key issues when deciding whether expenditure on an asset is revenue include: the durability of the asset, whether the ‘entirety’ has been replaced, and whether there has been an improvement or enhancement of the asset and its function.

Tax Tribunal Decision

The first-tier tribunal found in favour of the taxpayer.  It held that the whole of the outbuilding structure (ie, the ‘entirety’) had not been replaced and that the disputed work undertaken was of ‘essential repair’.  The taxpayer was able to claim a tax deduction for the repair costs claimed.  Furthermore, the tribunal permitted additional tax relief for the costs of structural works that were undertaken to ensure that the outbuilding did not collapse, but were not originally claimed by the taxpayer.

Our View

The circumstances of this case were like those of Conn v Robins Bros Ltd (1966) 43TC 266.  That taxpayer was successful, so it was little surprise that more than 40 years later Mr Wills was successful too.  What was surprising was that HMRC took this dispute to the tribunal at considerable time and cost to the taxpayer.  In doing so HMRC was fully supported by its own internal review process.  This is meant to resolve disputes quickly and inexpensively without incurring the cost of the tribunal, but has recently been criticised by commentators for too often failing to follow proper procedures and being a mere ‘rubber-stamping’ exercise that is insufficiently independent and robust.


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