A client of mine has just started to rent out a few residential properties, unfurnished. I have been given expenses aquired which include the solicitors fees for the property purchase and new central heating system. Would these both be capital expenditure and therefore not deductible in computing profit for the year?
The solicitors fees are definitely a capital cost but the central heating system is up for debate.
In my opinion, if the central heating system is a straight replacement for the old one, then this should be treated as repairs and maintenance. However, if the new central heating system is an upgrade of the existing sytsem then it may be considered to be a capital cost. It is a slight grey are sorry.
The legal costs definitely are and should be added to be base cost (reducing any capital gain when sold).
If the property has been recently purchased, which it seems it is, and the central heating system has been put in then would argue that this is an improvement over whatever was there (otherwise why replace it) therefore improvement so should be capitalised. If the central heating system had been installed by the vendor then the chances are would have just increased the cost price.
