An improvement is when a landlord buys a new item to replace an old item, but the new item is better. Landlords cannot claim a deduction as an allowable expense for the full cost of the improvement for tax purposes, but only the amount equal the cost of buying an item equivalent to the original.
Let’s take the example of replacing a sofa with a sofa bed. If a new sofa costs £400 but a sofa bed costs £550, a landlord can only claim £400 as a deduction and no relief is available for the extra £150.
A new item is considered an improvement when:
- it’s not the same or substantially the same as the old item
- the function has changed, e.g. from a sofa to a sofa bed
- the quality or material of the item is better, e.g. synthetic carpets replaced by woollen carpets
If the replacement item is a reasonable modern equivalent. For example, a new fridge with an improved energy efficient rating is not an improvement for tax purposes. Consequently, and the full cost of the new item is eligible for relief.