Tax penalty for reducing carbon footprint?

Tax penalty for reducing carbon footprint?

9:05 AM, 6th September 2022, About 2 years ago 2

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Hi, Like a good number of fellow residential landlords I am exiting the PRS in favour of a holiday let and am currently waiting to complete.

For my chosen property, as the hot water demand by holiday guests will be substantially greater than with residential use (think 6 people having a shower at the same time when they come back from the fells), I will need to install a bigger hot water cylinder to cope.

With energy prices rocketing, I thought also to reduce that particular overhead by installing solar panels and an air source heat pump, with underfloor heating for space heating. I would keep the existing boiler (oil-fired as no mains gas) as a booster. Back of envelope costs are around £20k-£28k for that.

As I understand it, this constitutes an improvement, the costs of which will be taken into account when calculating CGT on selling. However, I am of an age that I intend to keep the property to use an investment/second home and it will form part of my estate when I eventually go.

This gives rise to an anomaly whereby I will be penalised financially for reducing my carbon footprint.

For example, if we assume that the installation reduces my supplied energy bill from £6k to £3k, the £3k saving will then be taxed as rental profit.

However, I will not benefit from any tax recognition for the cost of upgrading in the first place.

Therefore, it makes financial sense for me simply to install a bigger hot water cylinder and ignore the potential for reducing my carbon footprint through lower energy bills. That is, my fuel bills will continue to be £6k, which I can offset against my rental profit, and I will save the capital cost of the more energy efficient installation.

Is that right?

Is there a way to offset the cost of an energy efficient installation against rental income?

What have other landlords done in a similar situation?

It isn’t an issue I have had to address as a residential landlord so any comments will be welcomed.

Thank you.


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Dennis Forrest

11:32 AM, 6th September 2022, About 2 years ago

Hi we have just moved our main address in to a property built in 2014. It already has installed a huge Megaflo unvented indirect cylinder. It is around 2 metres high and approximately 60cms diameter. My wife was hoping she could perhaps air clothes in this cupboard but no chance as the outside of the Megaflo is cold to the touch even though the water inside is as 60 degrees C. Something like this would give you the capacity you need and would be an economical way to store hot water under pressure. Maybe replacing your existing HW tank with something like this could count as a repair as you did say your existing HW tank was faulty, didn't you.

Seething Landlord

14:13 PM, 6th September 2022, About 2 years ago

If you google capital allowances for furnished holiday lets you will find quite a lot of advice that might be helpful to you on what seems to be a rather complicated topic.

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