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When are rental property costs classified as ‘capital’ or ‘income’?

By Meg Saksida, July 2020

Meg Saksida reviews the classification and clears up some common confusion. 

Is it a capital or an income expense? This is a question that is commonly asked when calculating a tax computation for a let property.  

Important distinction 

Why is it so important to know the difference? Because if the cost is an income expense, it can be deducted from the rental profits and will therefore lead to less income tax being paid. The tax reduction is immediate, as the deduction can be made in the same tax year as the expenditure. The deduction can also benefit from an (up to) 45% tax saving.  

If it is a capital expense on the other hand, it will be deducted from the proceeds on the disposal of the asset. It will become ‘enhancement expenditure’ and will be a part of the cost that is compared with proceeds in order to calculate the gain on

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