Tax Relief For Pre Let Property Costs

When you buy a property to rent out, it’s common to need a few updates before tenants move in. Fresh paint, new flooring, or fixing a leaky roof can make all the difference.

But before you start spending, it’s worth knowing whether those costs qualify for tax relief. HMRC draws a clear line between revenue expenses, which are deductible, and capital expenses, which are not, unless specific rules apply.

When Does Your Property Business Start?

If this is your first rental property, you don’t yet have an active property business. According to HMRC, your property business starts when the letting begins.

So, if you spend money refurbishing the property before your first tenant moves in, those expenses happen before the start of your property business.

However, HMRC allows some pre-commencement expenses to be claimed later.  They must meet certain conditions.

What Are Pre-Commencement Expenses?

Pre-commencement expenses are costs you incur before your rental business officially starts. HMRC allows you to deduct these later, provided they meet all three of the following criteria:

• The expense was incurred within seven years before your rental business began.
• The expense is not already deductible for another reason.
• It would have been deductible if you had incurred it after letting started.

If these conditions apply, you can treat the cost as if it was incurred on day one of your rental business.

That means you could get tax relief for repainting, minor repairs, or replacing damaged fixtures, even if you did the work before you found your first tenant.

Revenue vs Capital Expenditure

What is Revenue Expenditure?

Revenue costs are those that restore or maintain the property without improving it beyond its original state.

Examples include:

• Decorating or repainting rooms
• Fixing a roof leak
• Replacing broken windows
• Repairing plumbing or electrics

These are classed as repairs and maintenance, and if they meet the pre-commencement rules, they are deductible from your rental profits.

If you already own other rental properties, similar repair costs on a new property before it is let will also be deductible from your overall rental income.

Capital Expenditure

Capital expenses, on the other hand, are those that improve or upgrade the property. These are not deductible against rental profits.

Examples include:

• Replacing a basic kitchen with a high-end fitted kitchen
• Adding an extension or conservatory
• Converting a loft or basement into living space

While you will not get immediate tax relief, you might benefit later. These costs can usually be deducted from the sale proceeds when calculating Capital Gains Tax, CGT.

A Simple Example

Let’s say you buy a run-down flat in Leicester to rent out.

You spend £4,000 repainting, fixing broken doors, and replacing old carpets before your first tenant moves in. These are repairs, not improvements, so they count as revenue expenses.

You can claim them as pre-commencement expenses, deducted from your rental profits once your first tenancy starts.

However, if you also replace the kitchen with a new one that is a clear upgrade, adding granite worktops, new lighting, and modern fittings, HMRC would treat that as capital expenditure. You will not get an immediate tax deduction for it.

Common Mistakes Landlords Make

Many landlords lose out on tax relief because they:

• Fail to record expenses before letting starts
• Mix capital and revenue costs in one invoice
• Assume all renovation costs are deductible
• Do not know when their property business starts for tax purposes

Keeping clear, dated records, including receipts, contractor invoices, and photos, helps demonstrate which costs are repairs versus improvements.

Cash Basis vs Accruals Basis

Most small landlords use the cash basis for property income. Under this method, you claim allowable expenses when you actually pay for them.

However, capital expenses are only deductible under the cash basis if they meet specific HMRC conditions, for example, replacing equipment or furniture that qualifies as a replacement of domestic items.

Furthermore, If you use the accruals basis, you claim expenses based on when they are incurred, not when they are paid.

For more detail, see HMRC’s guidance on the Property Income Manual, PIM2505, on GOV.UK.

Key Takeaways

• You can claim pre-commencement expenses if they meet HMRC’s three tests.
• Revenue repairs are deductible; capital improvements are not.
• The property business starts when the first letting begins.
• Keep detailed records of all work done and payments made.
• Know your cash or accruals basis and apply it consistently.

Final Word

Renovating before letting can make your property more appealing.  Furthermore, knowing what tax-deductible pre let property costs are, can make a big difference to your bottom line.

Get it right from the start, and you could save hundreds, or thousands, in unnecessary tax.

If you need help with property your property taxes, want to make your setup more tax-efficient?

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