In Messrs Elliot Balnakeil v HMRC [2021] TC08143, the First Tier Tribunal (FTT) found that farmhouse and bothy renovation costs were capital in nature and not allowable deductions for Income Tax purposes.

For expenditure to be an allowable deduction from trading profits, it must be incurred Wholly and exclusively for the purposes of the trade, and not capital in nature. The latter of these points was considered first. 

The FTT found that the renovation costs were capital, and so disallowable:


This case demonstrates the importance of interrogating the true nature of ‘repair’ expenditure recorded in accounts to establish its effect on the underlying asset.

As the expenditure, in this case, was capital, it was not necessary to consider whether it was wholly and exclusively incurred for the purposes of the trade. This was nevertheless discussed for completeness. It was found that the purpose of the expenditure was the conversion of the redundant properties into those suitable for holiday letting. The expenditure was not wholly and exclusively incurred for the purpose of the farming trade, against which tax relief had been sought.

Useful guides on this topic

Repairs and renewals
What expenses can you claim for tax? In what situations are repairs disallowed and treated as capital expenditure? 

Wholly and exclusively…toolkit
What does 'wholly and exclusively' mean? How do you determine if a cost is wholly and exclusively incurred for the purpose of a trade? What cases are there? 

Farming: What expenses can I claim?
What expenses can farmers claim for tax purposes? Are there special tax and accounting rules for farmers? What are the rules for VAT for farmers? 

Farming: Overview
What is farming? What are the tax consequences and tax considerations of farming?  

A to Z Index for different trades, professions & vocations
What expenses can you claim if you work in a certain type of business? These subscriber guides summarise the key tax treatments for different types of self-employed sole trader or partnership.

Furnished Holiday Letting
What is Furnished Holiday Letting? How do you qualify for Furnished Holiday Letting? What are the rules for Furnished Holiday Letting?

External link

Messrs Elliot Balnakeil v HMRC [2021] TC08143

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