Is Payment to Tenant a Capital or Revenue Expense During Repairs?

Q. One of my Let Properties Required Extensive Repairs to Cure a Damp Problem. The Tenant was on an Assured Tenancy, So We Reached an Agreement Under Which I Paid her to Vacate the Property, to Allow the Repairs to be Carried Out. The Flat was Relet After the Repairs were Completed. Is the Payment to the Tenant Treated as Capital or a Revenue Expense?

A. Your payment to the tenant to surrender her tenancy will be treated as a capital payment if it is reflected in the state or nature of the property at the date of disposal. However, as you relet the property (presumably on similar terms) the surrender of the tenancy is not reflected in the value of the property, so it cannot be treated as a capital cost. It is also not a revenue expense, so it ends up being a ‘tax nothing’, not deductible for tax at all.

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