The distinction between maintenance and improvements linked to residential properties and holiday homes

  • Print

Improvements to properties increase the input value and reduce the taxable profit/increase the deductible loss. This will not be of any significance until the property is sold. If the conditions for the tax-free sale of the property are met, the taxpayer may not utilise any costs attributable to improvements.Maintenance costs have no effect on the calculation of taxable profit/loss, but may instead reduce the taxable rental income during the income year in which the cost was incurred.

You will find more information on taxation the letting of residential or holiday property here.

Whether a cost is attributable to maintenance or improvements will depend on a specific assessment in each individual case.

Improvements

Improvements means work which alters or improves the condition of the property compared with its previous condition, e.g. extensions, modernisations or basic alterations. This applies even if the alteration does not result in any improvement to the property’s standard or increase in the value of the property.

Examples of improvements:

  • Demolition and moving of a wall to make a larger room
  • Painting of the building for the first time
  • Installation of insulation for the first time, e.g. in connection with the installation of cavity wall insulation in the walls of an older house
  • If a double-glazed window is replaced by a triple-glazed window, the cost over and above that of a double-glazed window is considered to be an improvement.
  • If a bathroom is moved to a different room in the house, the added cost that is entailed will generally constitute an improvement. However, work linked to any planned maintenance which may have been carried out on the old bathroom which be considered to constitute maintenance. Extension of electrical installations
  • A proportion of the costs attributable to the replacement of a wood-fired stove with a pellet-fired stove. The added cost associated with the purchase and installation of the pellet-fired stove will be considered an improvement.
  • Replacement with a larger water heater The added cost associated with the purchase and any installation of a larger water heater will be considered an improvement.
  • Expansion of plumbing system

Maintenance

Maintenance, including repairs, is work that is carried out to restore the property to the condition in which it existed previously. If older parts are replaced with new ones which according to current standards are of the same standard (low, medium or high) as those previously used in the asset, the entire cost will be considered to be maintenance. The condition is that the older part was in need of replacement.

Examples of maintenance:

  • Repainting of a house
  • Replacement of flooring, internal and external wall panels, doors, windows to the same standard as previously
  • Polishing of parquet flooring
  • Repairs to the same standard as before
  • Replacement of water heater with one of the equivalent size
  • Installation of bath tub, mixer taps, ordinary taps, partition walls and shower equipment will constitute maintenance if there was a bath tube, partition wall, etc. there previously
  • Replacement of plumbing
  • If a bathroom is moved to a different room in the house, this constitutes an improvement. The replacement of an old bathroom with one of the same standard as before will be considered to constitute maintenance.
  • Replacement with new kitchen fittings which are considered to be of a normal standard today where there were previously kitchen fittings of a normal standard

If the property was previously of a normal standard and is upgraded to a high standard, the difference between normal and high standard will be considered to be an improvement. Only the difference, not the full cost, must be added to the input value. When deciding whether or not an improvement has taken place, consideration must be given to developments that have taken place in the use of materials, etc. since the item was new.

Labour costs attributable to upgrading the property must be distributed based on whether the work that has been done constitutes maintenance or an improvement.

Work on a property linked to improvements that you carry out.

The input value is increased for the value of your own work linked to improvements to the property or holiday home while you are actually living in the property or using the holiday home, and the work is carried out during normal holiday or leisure time.

The value of such work may then be set to the cost that would have been incurred for hiring other people to do the work. If the person who carried out the work was not a skilled tradesman, which will usually be the case, the cost must be set as equal to the cost of hiring an unskilled labourer.

Did you find what you were looking for?

Maks 255 tegn. Kun tall og bokstaver.