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Refurbish with Confidence - Reap the Tax Relief Rewards

Robert Maas, Tax Consultant at London accountants CBW explains how to walk the line with confidence.

Refurbish or Improve? Either way, it's likely to be expensive. But there's a fine line dividing the two when it comes to rental properties. Stay the right side of it and there are a number of tax reliefs available that could ease the financial pain.

It's the difference between carrying out the refurbishment and its improvement that determines whether or not the taxman will deem you eligible for any of the various tax reliefs available.

The first question is whether the property has previously been let and you are refurbishing it between tenancies. If so, most of the expenditure could be deductible against rental income. This is because a lot of the cost is likely to be on repairs, which are a property business expense. The test is whether the work simply restores what was there before to its original pristine condition or whether it creates an improvement over the original.

In a way, everything is an improvement over what was there before, as you would hardly have spent the money otherwise - but that is not the test. What you need to compare the new work with is the original condition of the building. Simply making good wear and tear is a deductible expense - with one caveat: if you could not have let the building without carrying out a refurbishment at the time you first let it out, you need to look at the state of the building at that time, not the building as it was originally.

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