Capital improvements

Capital improvements are works that upgrade or significantly extend a property, rather than simply repair what is already there. Examples include building an extension, adding an extra bathroom, replacing single glazing with high performance windows, or installing a new central heating system where none existed before.

Capital improvements are treated differently from repairs and maintenance. Day-to-day repairs usually count as allowable revenue expenses against rental income. Capital improvements are normally capital costs, relevant for capital gains tax and long term value, not something you deduct in full from this year’s rent. Your accountant should advise how to classify borderline items. For example, a like for like boiler replacement versus upgrading the whole boiler system.

Under the Renters’ Rights Act, many landlords will need to plan capital improvements to meet higher rental standards, Minimum Energy Efficiency Standards (MEES), Decent Homes requirements and Awaab’s Law duties on damp and mould. These are business investments, not extras you can simply pass through as one-off “tenant fees”, which would usually be prohibited payments.

Capital improvements should be scheduled, budgeted and recorded carefully, especially where costs are recovered through service charges in blocks, or used to justify future rent increases under Section 13 or similar rent-setting mechanisms. See our expenses feature in August.

Also see our free landlord blog articles.