Specific deductions: dilapidations under a lease: capital expenditure
Expenditure on dilapidations of a capital nature is inadmissible as a deduction (for general guidance on the capital/revenue divide see BIM35000 onwards).
Thus, even though it may be alleged that the cost of re-instatement includes an amount in respect of hypothetical repairs, no deduction is to be allowed for:
- the cost of rebuilding the leased premises (see Fitzgerald v CIR  IR 585), or
- the cost of re-instatement of any portion of the leased premises which has been demolished by the lessee, or
- the cost of the demolition of any structure which the lessee has added.
A sum paid to the lessor by way of composition to make good the cost of dilapidations is an inadmissible deduction where such cost is incurred:
- by the former tenant on renewal of the lease (on the principle in MacTaggart v Strump  10TC17), or
- where it is incurred by a new tenant to whom a lease of the premises has been granted in their dilapidated state (see BIM46935).
But see the guidance on premiums at PIM1200 onwards, PIM1210 onwards and BIM46250 onwards.