Avoid Costly Repair vs Improvement Mistakes on Investment & Development Properties
- sam76172
- Dec 25, 2025
- 2 min read
This is one of the most expensive mistakes property investors and developers make. And it often only comes to light after HMRC raises a query.
Here’s how to avoid it 👇
1️⃣ Repairs ≠ Improvements
A repair puts a property back into its original condition. An improvement enhances or upgrades it.
Only repairs are usually deductible against rental or trading income .Improvements are normally capitalised.
Simple example:
Replacing broken windows → repair
Upgrading single glazing to double glazing → improvement
Small distinction. Big tax impact.
2️⃣ Timing Matters More Than You Think
Work done before the first letting is often capital. The same work done after letting may qualify as a repair.
This catches landlords out all the time, especially when refurbishing just before tenants move in.
3️⃣ Development vs Investment Changes Everything
If you’re a developer, most costs form part of trading stock. If you’re a long-term investor, costs are split between revenue and capital.
Misclassifying the activity leads to:
Overstated profits
Lost deductions
HMRC challenges
Intent matters. Evidence matters even more.
4️⃣ “Like for Like” Is the Key Test
Ask one simple question:
Was this replacing what was already there?
If yes, likely a repair.If it improves, extends, or upgrades, it’s usually capital.
Examples often challenged by HMRC:
New kitchens and bathrooms
Structural changes
Layout reconfigurations
Loft conversions and extensions
5️⃣ Documentation Protects You
HMRC doesn’t rely on invoices alone. They look at context.
Always keep:
Before and after photos
Clear descriptions of works
Contractor breakdowns
Evidence of condition at purchase
Good records = fewer disputes.
6️⃣ Get Advice Before the Work Starts
Once costs are incurred, options are limited. Early advice can:
Save tax
Improve cashflow
Avoid enquiries
Support future CGT claims
This is especially critical for:
Mixed-use properties
HMOs
Major refurbishments
Property incorporations
Final Thought
Two investors can spend the same £50,000. One gets tax relief. The other doesn’t.
The difference isn’t luck. It’s planning.
If you want clarity before committing to work, get specialist advice early. It nearly always pays for itself.
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