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