Energy work on a let property is deductible from rent only if it is a repair: putting back something that already exists, using the nearest modern equivalent, such as a new efficient boiler in place of a broken one or double glazing in place of single glazing. Adding something the property did not have, such as insulation where there was none or solar panels, is normally capital. For a residential let, capital work gets no income tax relief, although it can be set against the gain when the property is sold.

Does it make a difference that the law requires the upgrade?

Many landlords are spending money because of the minimum energy efficiency standard. In England and Wales, a domestic private rented property covered by the regulations cannot be let, or continue to be let, with an Energy Performance Certificate rating below E unless a valid exemption is registered, and this has applied to existing tenancies since 1 April 2020. A landlord is not currently required to spend more than £3,500 including VAT, and can count qualifying work done since 1 October 2017 towards that cap. The government’s guidance says it aims for as many privately rented homes as possible to reach band C by 2030 and is exploring policy design after a 2026 consultation. For commercial lettings, the band E requirement has applied to all privately rented non domestic property since 1 April 2023.

None of this changes the tax test. HMRC’s Business Income Manual at BIM46920 accepts that owners may be legally required to use different materials, but the question is still what the work achieves. If the asset can only do the same job as before, the work is a repair. If more can be done with it, or it can do something it could not do before, it is an improvement and capital. A compliance driven project is therefore split item by item, in the same way as any other building work. The general principles are in our guide to repairs or improvements on a rental property; this page applies them to energy measures.

Which energy upgrades are usually repairs?

  • Replacing a boiler. HMRC’s landlord guidance lists replacing a broken down boiler as a repair, and its case studies include replacing radiators, boilers and water tanks among typical repairs. A modern condensing boiler that heats the same home is the nearest modern equivalent of the old one.
  • Double glazing. PIM2030 says alterations due to advances in technology are generally treated as an allowable repair if the functionality and character of the asset is broadly the same, giving single glazing replaced with double glazing as its example.
  • Like for like materials. PIM2030 also says a trivial increase in performance from replacing old materials with newer but broadly equivalent ones does not make the work capital.
  • Appliances. A fridge or washing machine is not a repair to the building. It falls under replacement of domestic items relief, and HMRC’s guidance says a reasonable modern equivalent, such as a fridge with an improved energy efficiency rating, is not an improvement, so the full cost qualifies.

Which energy upgrades are capital?

Adding insulation where none existed is the clearest example. HMRC’s archived guidance on the Landlord’s Energy Saving Allowance (PIM7070) explains that the allowance existed because expenditure on loft, cavity wall, solid wall and floor insulation, draught proofing and hot water system insulation cannot normally be deducted when calculating taxable profits and is not eligible for capital allowances. That allowance, up to £1,500 per dwelling house, only covered spending incurred before 6 April 2015 for income tax and before 1 April 2015 for companies. Nothing has replaced it, so new insulation in a let home is a capital improvement with no income tax relief.

The same applies to solar panels or a battery added to a house that had neither. They are new assets doing something the property could not do before. For a residential let, section 35 of the Capital Allowances Act 2001 (CAA 2001) blocks plant and machinery allowances on anything provided for use in a dwelling house.

Watch for knock on costs. PIM2030 says that where a change of materials produces a significant improvement, the whole cost is capital, including redecoration and making good afterwards that would otherwise be a repair. Making good after external wall insulation, for instance, follows the insulation, not the normal decorating rules.

Capital is not wasted. Section 38 of the Taxation of Chargeable Gains Act 1992 allows expenditure incurred to enhance the value of an asset, if it is reflected in the state of the asset when sold. Keep invoices so the cost can be added to the base cost for Capital Gains Tax.

What about heat pumps and new heating technology?

Heat pumps are judged by the same BIM46920 test. Where a failed boiler is replaced by a heat pump that simply heats the same home, there is an argument that it does the same job. Where the project adds capacity or new features, such as underfloor heating, a larger cylinder or a whole new distribution system, the case for capital treatment is strong, and any capital parts of a mixed job have to be separated out. PIM2030 allows a reasonable apportionment, and a contractor’s breakdown is a sensible starting point, but HMRC will review it if capital work is described as repairs.

Some landlords receive Renewable Heat Incentive or Feed in Tariff payments for energy supplied to tenants. PIM2076 says these are treated as reducing the cost of providing heat, and any excess over that cost may be property income.

How do grants change the figures?

The Boiler Upgrade Scheme is open to owners of property they rent out, in England and Wales. It currently offers £7,500 towards an air source or ground source heat pump and £5,000 towards a biomass boiler, with one grant per property. The tax treatment of a grant follows what it pays for:

  • A contribution towards a repair is taxable income. PIM1058 lists contributions to repairs of a let property as likely to be taxable, and the SA105 notes include local authority grants towards the cost of repairs in box 20. The full repair cost is then deducted.
  • A grant towards capital spending reduces the amount on which capital allowances can be claimed (section 532 CAA 2001 and PIM1058).
  • For Capital Gains Tax, section 50 of the 1992 Act excludes expenditure met by the Crown or any public or local authority, so only the part you paid yourself goes into base cost.

Is the answer different for commercial lettings?

Yes, because the dwelling house block does not apply. Section 28 CAA 2001 treats expenditure by a property business on adding insulation against loss of heat to a building it lets as plant, subject to section 35. That expenditure is special rate expenditure under section 104A, as are solar panels. Heating systems are integral features under section 33A. Commercial landlords can use the annual investment allowance, currently £1 million, and any excess goes into the special rate pool at a writing down allowance of 6%. Our guide to capital allowances for landlords covers the wider rules.

Under the cash basis, PIM1095 says capital spending on assets used in an ordinary residential property is never deductible. For other property, depreciating assets installed in or fixed to the building can be deducted, but not spending on walls, floors, ceilings, doors, windows and similar parts of the building itself. See cash basis and accruals.

How would a typical project be treated?

Illustration only. Nadia lets a terraced house rated F. To reach band E she spends the following:

Work Cost Treatment
Failed back boiler replaced with a condensing boiler £2,600 Repair, deducted from rent
Loft insulation where there was none £700 Capital, kept for Capital Gains Tax
Rotten single glazed windows replaced with double glazed units £4,200 Repair, nearest modern equivalent
New fridge freezer replacing a broken one £450 Replacement of domestic items relief

Nadia deducts £6,800 of repairs plus £450 under the replacement relief. The £700 loft insulation is recorded as enhancement expenditure. On her return, the repairs go in box 25 and the replacement relief in box 36 of the UK property pages.

What mistakes come up most often?

  • Treating the whole retrofit as repairs because the regulations required it.
  • Claiming capital allowances on insulation or solar panels in a home. Section 35 blocks them.
  • Forgetting grants. A grant towards repairs is income; a grant towards capital work reduces allowances and base cost.
  • Not splitting mixed invoices into repair and capital elements.
  • Losing the paperwork for capital work that will reduce a future gain.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.