June 12

Could landlords benefit from tax deductible property improvements?

You could build higher rents and property values, and reduce your taxes

No, it wasn’t a late April Fool’s joke. On 4th April 2019, a House of Lords committee made a recommendation that is sure to be welcomed by an overwhelming majority of landlords. It recommended that there should be “stronger incentives for private landlords to improve the quality and design of their properties”. This could include tax relief on improvements made to a buy-to-let property.

How are improvements taxed at today?

Currently, buy-to-let landlords cannot claim tax relief on improvements made to a property. If you build an extension, add a bedroom, or create an ensuite, you cannot deduct the cost of the improvements from your rent to reduce your tax bill.
Instead, if you make improvements, you must keep your receipts and use the costs to reduce your capital gains tax liability if and when you sell the property.

Why should improvements be tax deductible?

Many in the buy-to-let industry have argued for a long time that property improvements should be tax deductible. Now the House of Lords Select Committee on Regenerating Seaside Towns has signalled its agreement.
The committee recognises that poor-quality homes are a significant problem for many seaside towns, with ‘perverse financial incentives to offer poor accommodation’ among the issues causing such problems. Tax relief on property improvements to a residential property is among several recommendations made by the committee, which believes this would encourage landlords to upgrade the homes of their tenants.
If tax deductibility for improvements is brought in, then it may also cover improvements recommended on Energy Performance Certificates – a boost for buy-to-let landlords who may be caught in the new MEES regulations trap.

Should you spend your rental profits on home improvements?

If the recommendation is passed into tax law, then you may be tempted to make improvements. The question is, should you, and what impact might improvements have on the value of your buy-to-let investment property?
Recent research published by the Federation of Master Builders (FMB) and the HomeOwners Alliance (HOA) says that you could add £50,000 to the value of your property in just seven days. This is the amount it has found that removing an internal wall to create an open plan kitchen/diner would add to the value of a property in London. At a cost of just £3,500, this is a huge potential profit. In Surrey, adding a garden room would add more than £35,000 to a property’s value in only 14 days.
Other projects and their costs that could add value to a home in London include the following:

  • Creating a toilet from a cupboard under the stairs at a cost of £2,622 could add £9,683
  • Making kitchen improvements including a new worktop, flooring and cabinet doors at a cost of £4,127 could add £16,946
  • Creating an ensuite in the master bedroom would cost £4,713, and add £14,525 to a property’s value
  • Putting in a new driveway, at a cost of £2,208, would increase the property’s value by £9,683

(You can view the complete list here.)

The bottom line

Improving a home for tenants could help your profits in several ways.
It makes your property more attractive to potential tenants, encouraging them to stay longer and pay higher rents.
Low-cost projects could increase the value of your property, too. If you are considering selling your buy-to-let property or remortgaging to invest in a further property, spending a relatively small amount could increase the property’s value significantly and get you a step closer to your investment goals. Even better, such improvements can be completed quickly.
CEO of the HOA Paula Higgins noted that the research is good news for homeowners. Improvements make for a more enjoyable living experience, and the increase in the value of a home gives a financial boost when it comes to selling. We believe that it is also good news for buy-to-let investors – and will be tremendous news should the recommendation to make the cost of improvements deductible for tax purposes become tax law.
One caveat: before making any improvements to a buy-to-let property, an investor should speak to an investment property manager to see what improvements would add the most value. They should also seek tax advice.
For the news, advice and services that will make a real difference to your property investment profits, get in touch with Ezytrac at  +44 0 1522 503 717. We make property management effortless.
Live with passion
Brett Alegre-Wood


buy-to-let landlords, Home improvements

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