Capital Improvements

Improvement or Repair? Typical Examples

What Counts as a Capital Improvement

For Capital Gains Tax, HMRC calls these costs enhancement expenditure. To be deducted from your gain, the spending must have been incurred to add value to the property, and the improvement must still be reflected in the property when you sell it. An extension built in 2012 and still standing counts; a kitchen fitted in 2008 and ripped out in 2019 does not.

The key test is whether the work improved the property beyond its original state or simply kept it in good order. Replacing something with the nearest modern equivalent, such as single-glazed windows with double glazing, is generally treated as a repair. Repairs are a deduction against your rental income, not your gain, and you cannot claim the same cost twice.

Other Capital Costs You Can Deduct

• costs of establishing, preserving or defending your title to the property, such as legal fees in a boundary dispute;
• costs of buying it, such as Stamp Duty Land Tax, legal and survey fees;
• costs of selling it, such as agent, consultancy and legal fees and the cost of an EPC for the sale.

A Worked Example

A landlord bought a three-bed terrace for £140,000. Over the years they spent £22,000 on a rear extension, £8,000 on a new kitchen that replaced an old one, and £2,500 on redecoration between tenants. They sell for £260,000.

At 24%, the £22,000 extension saves £5,280 of CGT, provided the landlord can prove what was spent.

Keeping Records

Many landlords sell a property 15 or 20 years after the work was done, and HMRC can ask to see evidence. Keep invoices, builders' quotes, planning and building control documents, and bank records for the whole time you own the property and for at least four years after the tax year of sale. Where records have been lost, your accountant may be able to make a reasonable estimate from other evidence, but an unsupported figure is easy for HMRC to challenge.

Improvements and Selling a Portfolio

• Spending money on a property shortly before a sale rarely pays for itself with investor buyers, who price on rent and yield. Ask for a market appraisal before committing to major works.
• Work needed to meet the EPC C target or the Decent Homes Standard may be a capital improvement or a repair depending on what is done. Buyers will price in work you have not done.
• On an HMO conversion, the conversion costs are usually capital, while later replacement of fixtures is a repair.

Official Sources and Further Reading

• GOV.UK: Tax when you sell property, what you can deduct
• HMRC Capital Gains Manual: enhancement expenditure (CG15180)
• HMRC Property Income Manual: repairs (PIM2020)

General information for landlords in England, checked against official sources in October 2026. It is not tax, legal or financial advice: speak to a qualified accountant or solicitor about your own circumstances.