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Property repairs
Thank you for publishing my query ‘Can improved insulation constitute a repair?’ and the reply in Taxation, 2 November 2023. I now have some feedback to share with readers.
The feeling I get is that the tax profession is struggling to advise with certainty on what is, or should be, a very common transaction these days.
Even if it wasn’t ‘common’, given our politicians’ so called commitment to ‘net zero’, it seems to be a situation similar to that existing in the planning world – where the government makes it easier and more tax advantageous (like VAT zero rating) to plough up the green belt and get zero rating on new houses the quality of which many question (they often don’t even have solar panels), instead of providing some incentive/clarity on clear guidance on upgrading swathes of existing Victorian and earlier buildings. It’s as if no one cares.
Areas of deprivation
Down in the south, our property stock isn’t too bad but there are areas of deprivation like Hastings and St Leonards, and for a hard-pressed landlord there, they need to know with certainty if they should spend what is hard-earned money on these improvements, or whether they will get a grant, or whether to subsidise the tenant if the tenant gets the grant – but it isn’t enough. It affects decisions, surely?
This is a hard day-to-day question and I’m sure it is repeated all over the UK. I’ve seen what it’s like down there in Hastings. Every penny counts. Therefore, we still ask for, as Polonious says in Hamlet, a ‘well bethought’ position.
Insulation, the new double glazing
The situation with insulation brings to mind the issue of installing double glazing. At one time, replacing single glazed windows with double glazing was an improvement. Over time, double glazing became the industry norm. This meant that replacing single glazing with double glazing ceased to be an improvement and capital expenditure, and became allowable expenditure for tax purposes as it was simply replacing like with currently available like.
The feeling among practitioners seems to be that what is not being made clear is whether an improvement could be now regarded as a repair, and there is an awful lot of Victorian property (and Georgian, for that matter) in the country that needs work.
For example,someone I know in Brighton can’t replace their windows on their period building as they need to put special, and expensive, made-to-measure polycarbonate glazing inside each pane. It is a mixed residential and business building (with a shop below). I am not even sure if the commercial reference is relevant nor am I sure regarding void periods. They just want to keep wooden sash windows, so they need to put in secondary glazing as well.
Energy performance certificate (EPC)
These properties are let so they are within the EPC rules. The landlords were/are looking to upgrade the existing insulation, often with pressure from tenants, or in order to make these more attractive properties to rent out. These properties will have been owned for some time but the pressure for better insulation is now led by the ‘net zero’ targets and the huge cost of utilities, especially for lower income groups.
We need clarity
The additional insulation element, of any upgrade of an existing property, to walls, floors, windows, attics and roofs, for example, to improve EPC and reduce utility bills, should be treated as a repair and not an improvement, for business income deduction purposes. This is due to the fact that the heat loss and energy efficiency of such buildings is now below current standards and such an upgrade can normally now be regarded as a repair.
Reading HMRC’s Business Income Manual BIM46925 again, it seems clear that any increase in insulation is a revenue expense and we seek more guidance and clarity ‘for the many not the few’.
HMRC should, we believe, be clearer on something so important, that needs to happen at scale and we are considering referring this question to the CIOT committee for comment.
Period buildings hold their own in structural terms, but, surely, need a bit of love – including tax love. We have to care.
Green man.
