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Refurbishment Of Rental Properties – What Are The Tax Implications?Written on July 5, 2026 by Kirk Rice LLP

The Question:

I have three buy to let properties and one of them requires quite substantial refurbishment works. Will I be able to deduct the cost of the refurbishment works against my rental profits?

Kirk Rice LLP answers:

Key Points

• From April 2025, former furnished holiday lets are generally subject to the same refurbishment tax rules as other residential rental properties.
• Refurbishment costs for rental properties may be treated as either revenue or capital expenditure, depending on the nature of the work carried out.
• Repairs and maintenance are generally deductible from rental profits, while improvements are usually treated as capital expenditure.
• The tax treatment of refurbishment costs may differ where a property is purchased in a derelict or run-down condition.
• Keeping records of capital improvements may help reduce any Capital Gains Tax liability when the property is sold.

As is often the case with tax, the answer to your question is that it depends!

It is important to analyse the nature of the refurbishment costs to establish whether they will be considered to be a ‘revenue’ cost or a ‘capital’ cost. A revenue expense should be allowable against your rental profits. It is important to note that this will include profits from any of your buy-to-let properties and not just the property you are undertaking the works on. Capital costs, however, are not an allowable cost against your rental profits but should be available to offset against any capital gains tax on any future sale of the property.

To establish whether a cost is revenue or capital, you need to consider the nature of the cost. If the expense is incurred in restoring an asset by replacing subsidiary parts of the whole, then that will be considered a repair. For example, if the cost is incurred in replacing broken roof tiles, that would be considered to be a repair and therefore a revenue cost. If, however, the cost is incurred in significantly improving the asset beyond its original condition, then that would be considered a capital cost. For example, if a roof is removed in order to build another storey, then that is a capital improvement.

Further examples of common repairs that are normally deductible from rental profits are:

• Painting and decorating
• Repointing
• Repairs to broken windows, doors, boilers, etc.
• Replacement of kitchen units or bathroom sanitary ware

With regards to the final two bullet points, some care needs to be taken if there is any substantial improvement in the fixtures that previously existed.

What if the property was previously a furnished holiday let?

From April 2025, the Furnished Holiday Lettings (FHL) tax regime was abolished. Former furnished holiday lets are now generally subject to the same tax rules as other residential rental properties. This means refurbishment costs are assessed using the same repair versus capital principles outlined above, with repairs normally treated as revenue expenditure and improvements generally treated as capital expenditure.

Are refurbishment costs capital or revenue for rental properties?

Capital expenditure cannot be deducted in computing the profits of a property business.

Examples of capital expenses include:

• Expenditure which adds to or improves the land or property, for example, converting a disused barn to a holiday home
• Expenditure on a new access road to a property
• The cost of a new piece of land next to a property that is let

Care also needs to be taken with the cost of refurbishing or repairing a property bought in a derelict or run-down state. In these cases, the costs incurred in bringing the property into use for the first time will be considered as capital and not revenue. This contrasts with such costs incurred by a landlord on a property owned and previously rented out for many years, where they would be treated as revenue. This is not always a black-and-white situation and will depend on the specific circumstances, so it will be important to get advice in advance.

Capital gains tax

Capital gains tax is payable on any gains made when a property is sold. Very simply, this will be the difference between the selling price less the original purchase price less purchase and selling costs. These gains can be further reduced by any capital improvements undertaken during the period of ownership. It is therefore important to retain records of the costs incurred to back up the claim made.

Higher rate taxpayers should note that the effective rate of CGT for residential property sales will remain at 24%.

If you would like to discuss the tax implications of the refurbishment of your rental properties get in touch with us at info@kirkrice.co.uk

Please note: This article is correct as at the publication date. The answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of relief from taxation are subject to change. The Financial Conduct Authority does not regulate tax planning.