Are windows a capital improvement? Your expenses explained
Do new windows count as a capital improvement in your tax return? Get the answers in our explainer.
If you're a landlord, you naturally want the best return on any repairs or improvements you make to your property. To make this calculation accurately, you need to know how the investments you make will be taxed.
Goodness knows it isn't always easy. Accountant training takes years rather than months for a reason. Property tax is intricate, extensive and often not intuitive.
This is apparent in the example of windows. Let's say you want to replace the windows in your property. Will they be tax deductible? Alas, there's no straightforward yes-or-no answer.
Instead, the answer hinges on the extent and nature of the replacement. These will determine whether the investment is regarded by HMRC as capital or revenue expenditure.
So, before we go any further, what's the difference between these two types of expenditure?
Capital vs revenue expenditure
Revenue expenditure is all about the day-to-day. It refers to the costs you, as a landlord, will pay in the everyday running and maintenance of your rental property. These costs can be deducted from your taxable income.
It tends to cover recurring costs: things like letting agent fees, advertising costs, maintenance – and repairs.
Capital expenditure, by contrast, refers to investments that improve or extend the life of the property. These are not fully deductible against your rental income.
Capital expenditure covers the following:
- Significant structural changes, improvements and extensions
- New fixtures, fittings or features that aren't "routine"
- Conveyancing fees, surveyor fees and other legal fees incurred when acquiring the property
- External improvements that enhance the property's appearance
- Significant landscaping work
So, what about windows? The short answer is that it depends on whether the new windows are considered by HMRC to be a repair or an improvement.
A repair is classified as revenue expenditure and is therefore tax-deductible. An improvement, however, counts as a deductible capital expense.
So, before you commit to replacing your windows, you need to be clear about whether it will be classed as a repair or an improvement. What, exactly, are the differences?
What's the difference between a repair and an improvement?
We're not tax advisers. If you have one, ask them for advice about the work you have in mind. If, however, you're self-employed, your go-to source is HMRC's
Business Income Manual or BIM. In particular, you need to refer to BIM46900: "Specific deductions: repairs and renewals".
Here are some of the factors that BIM46900 encourages you to consider. Please bear in mind that this summary is not exhaustive. It's simply here to point you in the right direction.
First, a
distinction is drawn between "repairing a worn or dilapidated asset" and "replacing the whole or the 'entirety' of an asset". The first is a repair and, therefore, an allowable expense. The second counts as capital expenditure.
Next, you need to clarify whether you're restoring an asset to "what it originally had been" (a repair) or altering or improving the asset (an improvement).
In the case of windows, this distinction could apply if you were restoring a window to its original condition versus upgrading the windows to be more thermally efficient.
"Care needs to be taken," the guide goes on, "where a programme of works has been carried out as some works may simply be repairs, while others are alterations or improvements." In other words, you must make the distinction on a job-by-job basis.
The use of
modern materials for replacement windows may count as an improvement – but only "if, as a result of the work, more can be done with the asset, or the asset can be used to do something that it could not do before".
If, however, the asset does the same job as before, it counts as a repair and not an improvement.
The same goes for the use of
new technology. BIM gives the example of double glazing. Once upon a time, this counted as an improvement. Today, it's standard. This means it's now counted as a repair.
This is something to take into account if upgrading windows in a way that uses new technology. Is the technology sufficiently new that it counts as an improvement, or is it industry-standard and classified as a repair?
Next, there's the question of repairing, altering or improving second-hand windows. The cost of the repair counts as a capital expense if and only if "it is effectively part of the cost of acquiring the asset".
Finally, there's the question of what happens when a property is leased. If the tenant "agrees to restore the property to a good state of repair, then the repairs are capital expenditure".
As we've said, this isn't an exhaustive account of BIM's distinctions between tax-deductible repairs and improvements that count as capital expenditure. However, we hope it points you in the right direction and helps you decide whether to invest in new windows.
So… are windows a capital improvement?
By this point, it will be clear that the simplest answer isn't simple at all: it depends.
It primarily depends on whether your replacement windows are considered by HMRC to be a repair or an improvement. This, in turn, depends on whether:
- You're repairing dilapidated windows or replacing them in their entirety.
- You're restoring windows to their former condition or significantly improving them.
- The use of modern materials means "more can be done" with the windows.
- The technology used is new enough to count as an improvement.
- The replacement forms part of the cost of acquiring the asset.
- The property has been leased and the tenant has agreed to repair the windows.
When in doubt, ask a tax adviser. They'll help you to make the necessary distinctions and clarify whether your replacement windows count as a tax-deductible repair or a non-tax-deductible capital improvement.
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window installation services for more than 30 years. Are you looking for a repair or replacement in a West Yorkshire property?
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