What Property Improvements Reduce CGT: Enhancement Expenditure Explained

Enhancement expenditure is the capital you spend improving a property that, when you sell, is added to its base cost and reduces the chargeable gain. It sits at section 38(1)(b) of the Taxation of Chargeable Gains Act 1992, alongside what you paid for the property, your buying costs and your selling costs. Get the categorisation right and a sizeable gain shrinks. Get it wrong, by claiming repairs as improvements, and HMRC will strip the deduction out on enquiry.

The statute is short and the principle is simple, but the boundary between an improvement and a repair is where most landlords lose money, either by under-claiming genuine capital work or by over-claiming maintenance that belongs against rental income instead. This guide works through what qualifies, the test that catches people out, and how to evidence a claim that holds up.

What is enhancement expenditure for CGT?

Section 38(1)(b) allows two things as deductions: "expenditure wholly and exclusively incurred on the asset ... for the purpose of enhancing the value of the asset, being expenditure reflected in the state or nature of the asset at the time of the disposal", and expenditure incurred in "establishing, preserving or defending" your title to the property. The first limb is what landlords usually mean by improvements. The second is a narrower category that often gets overlooked.

Three conditions have to be met before spending counts as enhancement expenditure when selling a property:

• It must be capital, not revenue. The work has to improve the property beyond its prior condition, not restore it. Day-to-day maintenance fails here.
• It must enhance the value. The expenditure has to be for the purpose of bettering the asset, not merely keeping it in working order.
• It must be reflected in the property at the time of disposal. This is the limb that surprises people. If the improvement has since been removed or replaced, the original spend is lost.

That third condition is doing the heavy lifting. A first fitted kitchen installed in 2010 is enhancement expenditure, but if it was torn out in 2020 and replaced, the 2010 spend is no longer reflected in the asset and gives you nothing on a 2026 sale. Deciding whether a cost is capital at all is the first gate, and our capital vs revenue expenditure decision guide sets out the HMRC tests that make that call before you ever reach the CGT computation.

What counts as improvements for capital gains tax in the UK

These are the kinds of allowable home improvements for CGT that typically qualify, because each adds to or genuinely betters the fabric of the property rather than restoring it:

• Extensions, conservatories and additional floor space
• Loft, garage, cellar or outbuilding conversions into habitable rooms
• Splitting a house into self-contained flats, or knocking flats back into a single dwelling
• New structural elements: load-bearing walls removed, new staircases, underpinning
• First installation of central heating where there was none
• Double glazing fitted throughout a property that previously had single glazing
• A complete structural roof replacement (as distinct from patching)
• A full rewire or a new plumbing system upgrading the property's standard
• First-time damp-proofing, insulation or drainage that the property never had

The unifying theme is that the property is materially better, or different in nature, after the work. A landlord who spent on converting a loft into a fourth bedroom has changed what the property is, not just maintained it. That is the clearest case of allowable improvement costs for CGT.

What is NOT enhancement expenditure

Most disallowed claims fall into one category: work that restores the property to its earlier condition rather than improving it. HMRC's repairs guidance treats the following as revenue, deductible against rental income but not against the gain:

• Repainting, decorating and general cosmetic refreshes
• Fixing leaks, replacing broken tiles, patching a roof to keep it watertight
• Replacing worn carpets, a tired bathroom or a dated kitchen with a modern equivalent
• Servicing or replacing a boiler with a similar-specification model
• Routine upkeep, cleaning and minor repairs between tenancies

The point that trips landlords up is the "modern equivalent" rule. When you replace something worn out, the fact that today's version is better than the one you removed (a condensing boiler instead of an old one, uPVC instead of rotten timber windows) does not turn the cost into an improvement. HMRC accepts that materials and standards rise over time, so a like-for-like functional replacement stays a repair. It only becomes enhancement expenditure if the new item does materially more than the old one did, for example a single-glazed window replaced with a full bay extension.

There is also a hard statutory wall against double-dipping. Section 39 TCGA 1992 excludes from the s.38 base cost any expenditure already relieved against income for income tax purposes. So you cannot claim the same spend twice: repairs go against rental profit, improvements go against the gain, and nothing legitimately sits in both columns.

Capital vs revenue: the boundary cases

Several recurring questions sit right on the line. The table below shows how the same broad activity falls on either side depending on what was actually done.

Work carried out	Usual treatment	Why
New kitchen replacing a worn one	Revenue (income)	Like-for-like replacement of an existing facility
Kitchen fitted where there was none, or knocked through into a kitchen-diner	Capital (CGT)	New facility or material change to the property
Patching or partial roof repair	Revenue (income)	Restores the property to a watertight state
Full structural roof replacement	Capital (CGT)	Renewal of a substantial part, improving the asset
Replacing rotten single-glazed windows with uPVC double glazing	Revenue (HMRC modern-equivalent concession)	Functional replacement using current materials
Double glazing installed where the property had none	Capital (CGT)	First-time provision improves the property
Replacing a boiler with a similar model	Revenue (income)	Repair of the heating system
First central heating installation	Capital (CGT)	New system the property never had

The practical discipline is to keep a running schedule per property that tags each invoice as capital or revenue at the time, not years later when the detail has faded. That schedule is what feeds both your rental tax return and, eventually, the CGT computation.

Is scaffolding capital expenditure, and what about professional fees?

A common question is whether scaffolding is treated as capital expenditure as part of enhancement works. The answer is that ancillary costs follow the job they serve. Scaffolding, access equipment, skip hire, architect and surveyor fees, planning application costs and building control fees all take the character of the underlying work.

If the scaffolding is erected to build an extension or carry out a structural roof replacement, its cost is part of that enhancement expenditure and is allowable under s.38. If the same scaffolding supports a repair, it follows the repair and is revenue. Where one set of scaffolding serves both an improvement and incidental repairs, you apportion the cost on a just and reasonable basis. Professional fees are treated the same way: an architect's fee for designing a loft conversion is capital; a managing agent's routine fee is not CGT-allowable at all because it is a running cost.

Establishing, preserving or defending title

The second limb of s.38(1)(b) is less familiar but genuinely useful. Expenditure wholly and exclusively incurred in establishing, preserving or defending your title to the property, or a right over it, is allowable against the gain. In practice that covers the legal cost of resolving a boundary dispute with a neighbour, removing a defect or restrictive covenant from the title, or defending ownership in litigation.

One point to watch, because the query "s.38 enhancing the property, eviction, title to property" comes up often: the cost of evicting a tenant to obtain vacant possession before a sale is generally treated by HMRC as an incidental cost of the disposal, not a title cost under this limb. The distinction matters for which heading you claim it under, though both are allowable against the gain. If you have incurred legal costs around ownership or possession, it is worth getting the categorisation checked rather than assuming.

How enhancement expenditure reduces your CGT

Enhancement expenditure works by lowering the chargeable gain, which is then taxed at the residential property rates and after the annual exempt amount. The building blocks for 2026/27 are:

Item	2026/27 position
Annual exempt amount (per individual)	3,000 pounds
Residential CGT rate, gain within the basic rate band	18 percent
Residential CGT rate, gain above the basic rate band	24 percent
Trustees and personal representatives	24 percent throughout
Reporting and payment deadline (where tax due)	60 days from completion

The gain itself is built as follows:

Chargeable gain = sale price minus (purchase price + acquisition costs + enhancement expenditure + selling costs)

For the rates, bands and how the gain stacks on top of your income, see our CGT rates on property for 2026/27, and for the step-by-step arithmetic, the CGT calculation walkthrough for a buy-to-let sale.

Worked example

A landlord bought a buy-to-let in 2014 for 200,000 pounds, with 6,000 pounds of acquisition costs (legal fees, survey and SDLT). During ownership they spent:

• 20,000 pounds on a loft conversion (capital enhancement)
• 14,000 pounds converting the integral garage into a habitable room (capital enhancement)
• 9,000 pounds installing central heating where the property had none (capital enhancement)
• 7,000 pounds on a new kitchen replacing a worn one, redecoration and a boiler swap (revenue, already claimed against rental income)

They sell in 2026 for 360,000 pounds, with 6,000 pounds of selling costs.

Allowable enhancement expenditure is 20,000 + 14,000 + 9,000 = 43,000 pounds. The 7,000 pounds of repairs is excluded by s.39 because it was already relieved against rental income.

Allowable cost: 200,000 + 6,000 + 43,000 + 6,000 = 255,000 pounds.
Chargeable gain: 360,000 minus 255,000 = 105,000 pounds.

Without the qualifying improvements the gain would have been 148,000 pounds. The 43,000 pounds of enhancement expenditure removes that slice from the taxable gain before the 3,000 pound annual exempt amount and the 18 percent / 24 percent rates are applied. Note what would have happened if the landlord had wrongly added the 7,000 pounds of repairs as well: HMRC would disallow it on enquiry, and the same costs cannot be reinstated against rental income after the event.

A note on former holiday lets and incorporated portfolios

Two situations change the picture and are worth flagging. First, the Furnished Holiday Lettings regime was abolished from 6 April 2025, so former FHL properties are now taxed as standard residential property. Enhancement expenditure rules are unchanged, but the old FHL capital allowances position no longer applies to new spend, and Business Asset Disposal Relief is no longer available on disposal. Where you previously claimed capital allowances on plant within a property, that spend cannot also sit in the CGT base cost.

Second, if the property is held in a company rather than personally, the company pays corporation tax on the gain rather than CGT, and indexation allowance still applies to base cost up to December 2017. The s.38 enhancement principle is the same, but the rate maths is different. Landlords weighing structure should read the buy-to-let limited company guide before assuming the personal-ownership figures carry across.

Records, MTD and getting the categorisation right first time

An enhancement expenditure claim is only as good as its evidence. The disposal year is the one HMRC can enquire into, and an undocumented improvement from years earlier is the easiest deduction to lose. Keep, per property:

• Itemised invoices showing the nature of the work and materials
• Before-and-after photographs of significant projects
• Planning consents and building control completion certificates where applicable
• The contemporaneous capital-versus-revenue schedule that tagged each cost at the time

Hold these for at least six years after you sell, not just six years after the work. Making Tax Digital for Income Tax is now live and phasing in by income (over 50,000 pounds from 6 April 2026, over 30,000 pounds from 6 April 2027, over 20,000 pounds from 6 April 2028), which pushes landlords toward digital record-keeping on the income side. That same digital discipline is exactly what keeps the capital improvements cleanly separated from the repairs, so the CGT computation writes itself when the property eventually sells. For the wider picture on how the gain is reported and paid, see the complete guide to capital gains tax on property.

Where projects mix improvement and repair, where a property has a long and patchy improvement history, or where HMRC has queried a claim, the apportionment is rarely as clean as the headline rule suggests. That is the point at which a second set of eyes on the schedule tends to pay for itself.