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HMRC internal manual

Business Income Manual

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 [1926] 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 [1925] 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.