Repairs, Capital Improvements, Replacement of Domestic Items and the New Rules for Holiday Lets After April 2025
By Steve Bicknell FCMA, CGMA
You spend £15,000 on a new kitchen in a rental property.
Is it:
- an allowable repair that reduces your rental profit now;
- a capital improvement that may only become relevant when you sell;
- a replacement domestic item;
- or a mixture of different things?
What about replacing single-glazed windows with double glazing? A new boiler? Rewiring? New carpets? Replacing a fridge? Refurbishing a property immediately after buying it?
These questions matter because repairs and capital improvements are treated very differently for tax.
And there has been another important change.
FROM APRIL 2025, THE SPECIAL FURNISHED HOLIDAY LETTINGS TAX REGIME ENDED
Former Furnished Holiday Lets (FHLs) are now generally part of the same UK or overseas property business as other residential lettings. The special FHL capital allowance treatment for new expenditure has gone, while Replacement of Domestic Items Relief can now apply to former FHLs. Existing pre-repeal capital allowance pools can continue to receive writing-down allowances.
So whether you own a buy-to-let, HMO or holiday let, understanding the difference between:
REPAIR • IMPROVEMENT • REPLACEMENT • CAPITAL
has become more important than ever.
Quick Answer – Repair, Improvement or Replacement?
Here are some common examples.
| Landlord expenditure | Possible tax treatment |
|---|---|
| Painting and decorating | Repair – normally revenue |
| Replacing broken roof tiles | Repair – normally revenue |
| Replacing an old roof with a modern equivalent | Can still be a repair |
| Replacing single glazing with modern double glazing | Can be a repair – modern equivalent |
| Refurbishing an old kitchen to a similar modern standard | Can be a repair |
| Building an extension | Capital improvement |
| Adding an extra bathroom where none existed | Normally capital improvement |
| Replacing an old fridge with an equivalent fridge | RDI may apply |
| Buying the first fridge for a previously unfurnished property | Not RDI – there is nothing being replaced |
| Replacing old carpets with equivalent carpets | RDI may apply |
| Replacing a boiler | Usually considered under repair rules rather than RDI |
| Major structural alteration changing the property | Likely capital |
| Furniture for a former FHL after April 2025 | RDI may apply if it replaces an existing item |
These are general examples. The precise facts matter.
The size of the bill alone doesn’t decide the tax treatment.
A £30,000 roof replacement can potentially be a repair, while a much smaller expenditure creating something that did not previously exist could be capital.
HMRC’s guidance confirms that common deductible repairs include decorating, damp and rot treatment, repairing windows and doors, repointing and replacing roof slates, flashing and gutters.
Why Does Repair vs Improvement Matter?
For a property business, a qualifying revenue repair can generally be deducted when calculating taxable rental profits.
For example:
Rental income: £30,000
Allowable repairs: £10,000
Subject to the other expenses and tax rules, that £10,000 can reduce the property’s taxable rental profit.
A capital improvement isn’t deducted from rental income in the same way.
It may instead form part of the property’s capital cost and potentially become relevant when calculating a future Capital Gains Tax liability.
So getting the classification wrong can significantly change when — or even whether — tax relief is available.
What Is a Repair?
HMRC describes a repair as broadly restoring an asset by replacing subsidiary parts of the whole.
For example, replacing storm-damaged roof tiles can be a repair.
By contrast, expenditure that significantly improves an asset beyond its original condition is generally capital.
A useful starting question is therefore:
ARE YOU RESTORING WHAT WAS ALREADY THERE OR CREATING SOMETHING NEW OR BETTER?
But even that isn’t the whole story.
The “Entirety” Test – What Are You Actually Replacing?
One of the most important concepts is the entirety.
HMRC’s basic position is:
- repairing a worn or dilapidated asset is normally revenue expenditure;
- replacing the asset as a whole is normally capital.
But identifying the asset is crucial.
Consider a roof.
If the roof is regarded as a subsidiary part of the house, replacing a worn-out roof does not necessarily mean you’ve replaced the entire asset.
The asset may be:
THE HOUSE
not:
THE ROOF
HMRC similarly gives an example of a fitted kitchen being stripped out and replaced with an equivalent modern kitchen. The kitchen is treated as part of the house rather than a separate entirety, and on those facts HMRC treats the work as a repair.
Contrast that with demolishing an entire separate garage and building a new one. HMRC’s example treats that as replacing the entirety and therefore capital expenditure.
This principle is reflected in the longstanding case-law concept of repair being the renewal or replacement of subsidiary parts of a larger whole.
Does Replacing Something With a Better Modern Version Make It an Improvement?
Not necessarily.
This is particularly important with older properties.
Suppose you replace:
single-glazed windows
with:
modern double-glazed windows.
The new windows are clearly technically superior.
But double glazing is now a normal modern replacement.
HMRC accepts that using modern materials does not automatically turn a repair into an improvement.
The important question is whether, broadly, the asset continues to perform the same function or has been substantially enhanced or changed.
The same principle can apply to replacing:
- lead pipes with modern pipework;
- outdated electrical equipment;
- old heating systems;
- obsolete building materials;
- or equipment that is no longer legally or practically available.
Your existing repair guidance also highlights modern-equivalent replacements, including replacing single-glazed windows with double glazing and old lead pipes with modern materials.
So:
NEWER DOES NOT AUTOMATICALLY MEAN CAPITAL
HMRC even acknowledges that changing technology can mean a replacement lasts longer or performs more efficiently without necessarily changing a repair into an improvement.
Kitchens – Repair or Improvement?
Kitchen refurbishments are a classic problem.
Suppose a landlord removes:
- old kitchen units;
- worktops;
- sink;
- fitted hob;
- tiles;
- and worn flooring,
and replaces them with modern equivalents of broadly similar quality.
That can potentially be a repair to the property, despite the fact that virtually the entire fitted kitchen has been replaced.
HMRC has an example where the fitted kitchen is completely renewed with equivalent-quality units in a different layout. HMRC treats the house as the entirety and the kitchen refurbishment as a repair.
But now suppose the landlord:
- substantially enlarges the kitchen;
- knocks down walls;
- creates a large kitchen/diner;
- adds an island and facilities that did not previously exist;
- installs materially superior fittings as part of a major upgrade.
Now there may be a significant capital improvement element.
The facts matter.
One Refurbishment Can Contain Both Repairs and Improvements
This is particularly important.
Imagine a landlord spends £60,000 refurbishing a rental property.
The project includes:
| Work | Possible treatment |
|---|---|
| Redecoration | Revenue repair |
| Roof repairs | Revenue repair |
| Equivalent replacement kitchen | Potentially revenue repair |
| Repairing existing wiring | Potentially revenue |
| New extension | Capital |
| Creating second bathroom | Capital |
| New fridge replacing old fridge | Potential RDI |
| First dishwasher where none existed | Not RDI; consider capital treatment |
It would be wrong simply to say:
“The refurbishment cost £60,000, therefore it must all be capital.”
Equally, it would be wrong to assume that because builders describe everything as “refurbishment”, the whole £60,000 is deductible.
HMRC acknowledges that a programme of works can contain some repairs and some alterations or improvements.
That makes detailed invoices and cost breakdowns extremely important.
Ask your builder to itemise the work rather than issuing an invoice simply saying:
“Property refurbishment – £60,000.”
That description isn’t very helpful when somebody has to determine the tax treatment two years later.
Beware: Repairs Can Sometimes Become Part of a Capital Project
There is an important qualification.
If apparently repair-type expenditure is incidental to a wider capital renovation or conversion, its treatment may be affected.
HMRC notes that certain repair expenditure incidental to the renovation or conversion of part of a building can be treated as part of the capital cost of that project.
So you cannot necessarily split a fundamental capital transformation into artificial pieces and claim the decorating, plastering and similar consequential work as standalone repairs.
Again, the purpose and character of the overall work matter.
Bought a Run-Down Property? Repairs Aren’t Automatically Capital
This is another area where landlords frequently get confused.
Suppose you buy a property and immediately spend £40,000 repairing it.
Is the £40,000 automatically capital because the work happened immediately after acquisition?
NO – NOT AUTOMATICALLY
Timing alone does not decide the issue.
However, HMRC will consider the condition of the property when acquired.
If you buy a derelict or seriously run-down property that cannot sensibly be used or let without major works, expenditure putting it into usable condition may be capital. HMRC specifically lists refurbishment or repair of a property bought in a derelict or run-down state among circumstances that can represent capital expenditure.
But the position can be different where:
- the property was already capable of being let;
- you paid a normal market price;
- defects subsequently became apparent;
- and the work restores rather than fundamentally improves the property.
The source material similarly identifies whether the property was lettable when purchased, whether the purchase price reflected the defects, and whether the works formed part of an improvement project as relevant factors.
Worked Example – £50,000 Refurbishment After Purchase
Consider an illustrative example based on the type of case we see in practice.
A landlord purchases a residential investment property.
It is not bought at a substantial discount because of serious disrepair and is capable of being occupied.
After purchase, problems emerge and approximately £50,000 is spent on:
- electrical repairs;
- damp treatment;
- flooring;
- structural repairs;
- decorating;
- and replacing worn components.
The important questions aren’t simply:
“Was the work expensive?”
or:
“Was it done shortly after purchase?”
Instead we need to ask:
- Was the property capable of use when acquired?
- Did the purchase price reflect serious defects?
- Was the expenditure restoring what already existed?
- Was an entire separate asset replaced?
- Was the character of the property changed?
- Was this actually a scheme to substantially improve or transform the property?
Depending on the answers, substantial expenditure shortly after acquisition can still contain deductible repairs.
Replacement of Domestic Items Relief – RDI
Repairs are only part of the story.
Residential landlords can also have Replacement of Domestic Items Relief.
This is particularly important for furnished and partly furnished properties.
RDI can apply to the replacement of domestic items such as:
- beds;
- sofas;
- tables and chairs;
- carpets;
- curtains;
- crockery and cutlery;
- televisions;
- fridges;
- freezers;
- washing machines;
- and similar household items.
The key word is:
REPLACEMENT
First Purchase vs Replacement
Suppose you start letting an unfurnished property and buy a sofa for £1,000.
There was no previous sofa.
That isn’t a replacement, so RDI doesn’t apply merely because the sofa is used by the tenant.
Now suppose several years later that sofa is worn out and replaced.
That is potentially within RDI.
The underlying material makes exactly this distinction: the relief is concerned with replacing an existing domestic item rather than purchasing something for the first time.
What If the New Item Is Better Than the Old One?
This needs careful consideration.
Suppose the tenant’s old fridge needs replacing.
An equivalent modern replacement costs:
£600
Instead, the landlord buys a premium American-style fridge-freezer costing:
£1,800
RDI does not necessarily give relief for the entire £1,800.
Broadly, where the new item represents an improvement beyond a reasonable modern equivalent, the additional improvement cost can be excluded from the relief.
The key distinction is again between:
modern equivalent
and:
genuine upgrade.
So replacing an old basic appliance with today’s ordinary equivalent is different from deliberately moving into a substantially higher specification.
Fixtures Aren’t Necessarily Replacement Domestic Items
It is also important to distinguish movable domestic items from parts of the building.
A freestanding fridge, for example, can be an asset in its own right. HMRC contrasts this with fixtures forming part of the building.
Items such as:
- boilers;
- fitted sanitary ware;
- radiators;
- plumbing systems;
- and other fixtures
will generally need to be considered under the repairs versus capital rules rather than simply being put through RDI.
This distinction is also made in the source material between movable domestic items and fixtures forming part of the dwelling.
Holiday Lets – The Rules Changed From April 2025
This is a major change for holiday-let owners.
Before abolition, qualifying Furnished Holiday Lettings benefited from special tax treatment.
For capital allowances, qualifying FHL businesses could claim allowances on plant and machinery such as:
- furniture;
- white goods;
- and other qualifying equipment within the property.
Ordinary residential property businesses generally could not claim capital allowances on those dwelling-house items.
That changed when the FHL regime was abolished.
The special rules ceased from:
- 6 April 2025 for Income Tax, and
- 1 April 2025 for Corporation Tax accounting periods, subject to the detailed commencement provisions.
What Does That Mean for a Holiday Let in 2026?
A former FHL is now generally brought into the same UK or overseas property business rules as other property lettings.
For new expenditure, the old FHL capital allowance advantage no longer applies.
Instead, former FHL businesses can potentially use:
REPLACEMENT OF DOMESTIC ITEMS RELIEF
in line with other property businesses.
This is a major practical change.
For example, before abolition a qualifying FHL might have claimed capital allowances on qualifying furniture and white goods.
After abolition, a replacement sofa or fridge in a former FHL needs to be considered under the ordinary property rules, including RDI where its conditions are met.
What Happens to Old FHL Capital Allowance Pools?
They don’t simply disappear.
HMRC confirms that where an existing FHL business had an ongoing capital allowance pool before abolition, the business can continue to claim writing-down allowances on that historic pool.
But new expenditure incurred after the relevant abolition date must be considered under the ordinary property-business rules.
So there are effectively two questions:
OLD EXPENDITURE
Was it already in a qualifying pre-abolition FHL capital allowance pool?
NEW EXPENDITURE
What relief, if any, is available under the normal property-business rules?
This distinction is particularly important for established holiday-let businesses with historic capital allowance claims.
What About Capital Allowances on Dwellings?
The abolition of FHL treatment means former holiday lets no longer have the special FHL exemption that allowed qualifying plant and machinery allowances on items within the dwelling.
HMRC is explicit that FHLs previously obtained capital allowances on furniture and white goods whereas non-FHL property businesses did not — and still do not — qualify for capital allowances on those items.
Therefore, don’t assume:
“It’s a holiday let, so we can claim capital allowances.”
For new expenditure, that old FHL treatment has gone.
What About HMOs?
HMOs can require particular care.
Simply describing an area as a “communal area” doesn’t necessarily take it outside the dwelling-house capital allowance restrictions.
The precise property layout, nature of occupation and expenditure need to be considered.
So I would be wary of broad claims that furniture or equipment in HMO common areas automatically qualifies for capital allowances.
Repairs and Improvements Can Affect Capital Gains Tax Later
If expenditure is capital rather than revenue, that doesn’t necessarily mean it is lost forever.
Qualifying capital enhancement expenditure may potentially be deductible when calculating the gain on a later disposal of the property, subject to the CGT rules.
That makes good record keeping important.
If you spend £25,000 on a genuine capital improvement in 2026 and sell the property ten years later, you don’t want to discover that the invoices and evidence disappeared nine years ago.
Keep records of:
- invoices;
- contracts;
- planning documents;
- photographs before and after;
- specifications;
- bank payments;
- and explanations of the work undertaken.
Don’t Forget VAT – Could a Development Company Help?
There is another tax that can make a huge difference to major property projects:
VAT
Ordinary residential letting is generally an exempt activity for VAT purposes.
That can mean VAT incurred on refurbishment or development costs isn’t recoverable in the way a VAT-registered taxable business might expect.
But property development and conversion can have very different VAT consequences.
For example, HMRC’s current construction guidance provides for:
- zero-rating of qualifying new dwellings;
- 5% VAT for certain conversions to a different residential use;
- 5% VAT for qualifying renovation or alteration of residential premises that have been empty for at least two years;
- and potentially zero-rating of the first sale or long lease following certain qualifying non-residential-to-residential conversions.
This is why, in the right circumstances, undertaking a genuine development project through a development company can potentially create VAT advantages.
We have previously looked at this in:
The VAT Advantages of a Development Company
Read our Development Company VAT article
However:
DO NOT INSERT A DEVELOPMENT COMPANY AFTER THE EVENT JUST TO TRY TO RECOVER VAT
The structure, contractual arrangements, ownership, intended onward supply and VAT position need considering before significant expenditure is incurred.
This is an area where planning before the project begins can be considerably more valuable than tax advice after the invoices have already been paid.
10 Common Landlord Mistakes
1. Assuming anything expensive must be capital
The amount spent does not determine the treatment.
2. Assuming anything described as “maintenance” on an invoice is deductible
Tax treatment depends on what was actually done, not the invoice heading.
3. Assuming new materials automatically mean improvement
Modern equivalent replacements can still be repairs.
4. Assuming a new kitchen is always capital
An equivalent fitted-kitchen replacement can potentially be a repair.
5. Assuming work immediately after buying a property is always capital
The property’s condition, price and purpose of the works matter.
6. Claiming RDI on the first furniture bought for a property
There needs to be a replacement.
7. Claiming the full cost of a substantial upgrade under RDI
A genuine improvement element may need restricting.
8. Treating every item in one refurbishment project the same way
A project can contain repairs, capital improvements and RDI items.
9. Continuing to claim FHL capital allowances on new expenditure after abolition
The special FHL treatment ended from April 2025.
10. Thinking about VAT after the development has started
VAT planning can depend on the structure and intended transaction, so it should be considered before contracts and expenditure are committed.
Landlord Repair or Improvement – Decision Table
| Question | If YES | If NO |
|---|---|---|
| Is the work restoring something already there? | May be a repair | Consider capital |
| Is the whole separate asset being replaced? | More likely capital | Repair may be possible |
| Is it merely the nearest modern equivalent? | Can still be repair | Consider improvement |
| Does the property do something substantially new afterwards? | Likely improvement | Repair more likely |
| Is a movable domestic item being replaced? | RDI may apply | Consider other rules |
| Was there an old item to replace? | Continue RDI test | No RDI |
| Is the replacement substantially better? | Improvement restriction may apply | Full RDI may be possible |
| Is it a former FHL after April 2025? | Ordinary property rules now generally apply | — |
| Is there an old FHL capital allowance pool? | WDA may continue | No new FHL pool |
| Is this a major development/conversion? | Consider VAT before starting | Normal landlord VAT position may apply |
Frequently Asked Questions
Is replacing a kitchen tax deductible for a landlord?
Potentially. Replacing an existing fitted kitchen with a modern equivalent can be a repair. HMRC gives an example where an equivalent replacement fitted kitchen is treated as a repair to the house.
Is replacing a roof a repair or improvement?
Replacing or repairing a worn roof can potentially be a revenue repair because the roof is a subsidiary part of the building. Adding another storey or fundamentally changing the building would be capital.
Is double glazing a repair or improvement?
Replacing old windows with the modern equivalent can potentially remain a repair. The fact that modern materials are technically superior does not automatically create a capital improvement.
Can a landlord claim for a new boiler?
Replacing an existing boiler with a modern equivalent can potentially be a repair. The precise circumstances and whether the heating system is being substantially improved should be considered.
Can landlords claim for furniture?
Where an existing domestic item supplied to tenants is replaced, Replacement of Domestic Items Relief may be available subject to its conditions. The initial purchase of an item where there was nothing to replace generally doesn’t qualify for RDI.
Can I claim a new fridge in a holiday let?
Since abolition of the FHL regime, new expenditure no longer gets the former FHL capital allowance treatment. If an existing fridge is being replaced, RDI may potentially apply instead.
Can holiday lets still claim capital allowances?
The special FHL capital allowance treatment for new expenditure has ended. Existing qualifying pre-abolition pools can continue to receive writing-down allowances.
Can refurbishment costs immediately after buying a property be deducted?
Sometimes. Timing alone isn’t decisive. The condition of the property when purchased, whether it was usable, whether the price reflected its defects and the nature and purpose of the works all need consideration.
What happens to capital improvements?
They aren’t normally deducted from rental profits. Qualifying enhancement expenditure may potentially become relevant to the CGT calculation when the property is eventually disposed of.
Can I recover VAT on refurbishment costs?
It depends on the activity and structure. Ordinary residential letting is generally VAT exempt, but new construction, qualifying conversions and certain renovations can have special VAT treatment.
Before Starting a Major Refurbishment – Get the Tax Treatment Right
If you are about to spend £20,000, £50,000 or £100,000 on a property, don’t wait until the year-end accounts are prepared before thinking about tax.
Before starting, consider:
INCOME TAX / CORPORATION TAX
Which costs are repairs and which are capital?
REPLACEMENT OF DOMESTIC ITEMS
Which furniture, appliances and furnishings genuinely replace existing items?
CAPITAL ALLOWANCES
Are there historic pools or qualifying assets outside the normal dwelling restrictions?
CAPITAL GAINS TAX
Which improvement costs should be retained for a future disposal?
VAT
Is this actually a development or conversion where the VAT treatment could be different?
STRUCTURE
Should the development activity be undertaken personally, through the existing property company or potentially through a separate development company?
That last question needs answering before the project begins, not after completion.
How Bicknell Business Advisers Can Help
Property refurbishment frequently involves several different taxes at the same time.
We can help review:
- repairs versus capital improvements;
- major refurbishment programmes;
- Replacement of Domestic Items Relief;
- former FHL expenditure after April 2025;
- historic FHL capital allowance pools;
- property acquisition and pre-letting expenditure;
- VAT on developments and conversions;
- development-company structures;
- and the records required for future Capital Gains Tax calculations.
For larger projects, it is often worth reviewing the proposed works and builders’ estimates before work starts so that the accounting, tax and VAT treatment can be considered while there is still an opportunity to plan.
The Key Question: What Has Actually Changed?
When deciding whether property expenditure is a repair or an improvement, don’t focus only on:
how much it cost
or:
how new it looks.
Instead ask:
WHAT WAS THERE BEFORE?
WHAT WORK WAS ACTUALLY DONE?
WHAT IS THERE AFTERWARDS?
HAS THE PROPERTY OR ASSET SIMPLY BEEN RESTORED — OR HAS IT BEEN FUNDAMENTALLY IMPROVED?
Then separately consider whether any movable domestic items qualify for Replacement of Domestic Items Relief.
And for holiday-let owners, remember the major change:
THE SPECIAL FHL TAX REGIME ENDED IN APRIL 2025
Former FHLs are now generally within the same property-business regime as other residential lettings. New expenditure no longer receives the old FHL capital allowance treatment, although historic qualifying pools can continue, and RDI may now be available.
Getting the answer right can determine whether tax relief is obtained now, later, or not at all.
About the Author
Steve Bicknell FCMA, CGMA is Managing Director of Bicknell Business Advisers Limited, specialising in property taxation, landlord tax planning, SDLT, Capital Gains Tax and property company structures throughout the UK.
