What is defined as Capital Expenditure?

Hi Jackie,

Best to start from HMRC >> https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15150p

TCGA92/S38 (1)
Except where there is specific provision to the contrary, allowable expenditure is restricted to sums for

acquiring the asset
creating the asset
enhancing its value
establishing, preserving or defending title to or rights over the asset
incidental costs of acquisition and disposal.

I did some research on this for the same reason as you. You can claim capital improvement but not repairs. Improvements talk about substantial improvements such as extensions and additional rooms/facilities. So renewing a kitchen is a repair but a kitchen extension your could claim for the portion extended. We renewed rotten single glazed windows with double glazing which appears to be classed as an improvement. Most works however are classed as repairs.

According to the hmrc website, replacing an ordinary kitchen or bathroom with a luxury version will count as a capital gains cost you can offset as long as you did not already claim for repairing them in the previous tax return.

A good starting point is that if you have already claimed as an expense against income, you cannot also claim as a capital expense.

Capital costs typically include the following:-

1) Lease extension premiums
2) Stamp Duty Land Tax
3) Business restructuring costs - see https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46435
4) Additions to properties not previously accounted for as repairs and/or renewals, such as an extension to a building
5) Legal fees at the point of acquisition

What will you gain by doing any capital works? It won't alter the amount of CGT you pay on the increase in value the property has already made. If you now spend £10k on works and sell your property the same price you will save £2800 in tax but will have lost £7200 on the works. If you sell it for £10k more you will only be exempt on the £10k you spent, and will still pay the same amount of CGT as if you hadn't touched it. If you sell it for £20k more then you will be exempt on the £10k you spend, but will now have £2800 CGT to pay on the extra increase in value, but this will give you profit.

I believe CGT goes against your earning for the year as well, so if you are not already it may put you into a higher tax bracket as well.
If this doesn't make sense please ask Mark if I am correct or not, he will be able to put us right 🙂

Reply to the comment left by Colin Dartnell at 20/04/2021 - 20:42
Yes this is correct. If you can spend an extra £10,000 and make an extra £20,000 on a sale that’s a great deal. The extra £2,800 of tax is fair because you have just pocketed an extra £7,200 net.

I purchased a flat that only had a sink for a kitchen. I installed a budget kitchen. As this must have been an improvement I put receipt in capital gains box. 15 years later I have replaced this kitchen with a nice new kitchen. Is this an income expense or a capital gains expense.

Reply to the comment left by brian clement at 22/04/2021 - 01:39
The new one is a renewal, so it’s offset against income.

Reply to the comment left by brian clement at 22/04/2021 - 01:39
According to the examples on the HMRC site if it is a like for like replacement then it is treated as a repair. If it is an upgrade then it can be considered claimable against capital gains if not reported as a repair previously.

Reply to the comment left by brian clement at 22/04/2021 - 01:39
It depends if it is like for like or an upgraded kitchen. Like for like is a repair, upgraded is a capital expense.

Anything I can put through as a repair is of benefit as I am on higher rate of tax and would rather get relief at 45% now than a capital relief at 28% in the future.