Landlord sets testing homework for the Revenue

Posted 10/08/2010

Victory was struck for small time landlords when HM Revenue & Customs were forced to back down over their challenge of tax deductions for repairs that were part of a refurbishment project.

The ruling, which told the Revenue to revisit their own rule book, confirmed a landlord’s right to offset the cost of legitimate repairs against rental income, even where they are part of a major refurbishment or rebuilding project.

But experts are warning this is the tip of the iceberg from an increasingly aggressive HMRC, which is turning to litigation, even where the taxpayer is odds on favourite to win. In the case, which came before the first tier tax tribunal recently, HM Revenue and Customs were given a rap on the knuckles and reminded to follow their own guidelines in future.

The case was brought by Mr Wills, the landlord of a property comprising a house, outbuilding and grounds which he let out to tenants. The outbuilding was used as a games room and for storage but had fallen into disrepair and was becoming dangerous. In 2004, the landlord obtained consent to repair the outbuilding, which was listed, and to install heating, power points and running water.

The total cost of the work came to