Capital Gains Tax - deducting costs for improvement

maryroberts

Hello, I'm just starting to read about Capital Gains Tax, in particular deducting the cost for improvements to a home.

Can anyone advise what exactly is acceptable as an improvement? From the examples I read on the HMRC website, the cost of a new swimming pool is ok, but not the cost of decorating.

Whilst I will not be installing any swimming pools (!), I will probably be installing a new kitchen, bathroom, carpets, other flooring, rebuilding a lean-to. (The property will not be my main residence).

What is meant by "decorating", do they just not accept the cost of paint, rollers etc?

Would be interested to hear from anyone who has experience of paying Capital Gains Tax, and deducting costs such as these.

Pennywise

For a cost to be "capital", there has to be an element of improvement over and above wear and tear.

Decorating costs, i.e. cost of materials plus the cost of the decorator aren't allowable for capital gains tax if it's just a matter of repainting or re-papering due to to wear and tear and time.

A replacement kitchen is likewise not allowable if it's "like for like", i.e. swapping old cabinets etc for new, again due to age or damage or wear & tear. Same with a replacement bathroom.

At the other end of the scale, knocking down an internal wall, and making the kitchen bigger, so that you can fit in a dishwasher and range and extra units, is allowable as you're clearly "improving" the house by making the kitchen bigger and facilitating more white goods and units.

Same with a bathroom. If your house is old and has an outside loo, and you convert the small bedroom into a bathroom, and put in a bath, shower, etc., then again, that's clearly an improvement, so allowable for capital gains tax. As would be an extension, or loft conversion, etc.

Problem areas include heating systems and double glazing. If there is no heating other than, say, coal fires or electric convector heaters, and the water is heating by the coal fire or an emersion heater, then the installation of a boiler and central heating radiators is an improvement. However, if there is an old fashioned system, such as storage heaters, under-floor air flow system, or the like, then HMRC could argue that a new combi boiler and radiators isn't an "improvement" as such, but merely replacing an old "system" with a modern "system". Same with double glazing. It's almost impossible to replace old windows with comparable single glazed wooden ones, so a replacement with bog standard double glazed plastic isn't "capital" because it's the modern equivalent of what was already there.

Remember, that anything not allowable for capital gains tax is probably allowable against rental income if the work is done whilst tenanted or between lets. It's probably not going to be allowed against rent if you do the work between buying it and it's first tenant.

maryroberts

Thanks for the comprehensive reply, Pennywise. I haven't started the work yet, but thought that anything would be an improvement on the state it's in at the moment, it needs complete renovation!

Oh well, looks like I will be paying tax on most of it then.

John_Pierpoint

On one of the property programmes, the house was bought to let BUT unlike the normal formula, the new land lords did the minimum to make it habitable, just to get a tenant into it.
Looks like they were then banking on tax allowable "renovations".

anselld

Whilst I agree with pennywise in terms of the general definitions, I think if a dilapidated property is purchased, eg to let, then initial cost of bringing the dilapidated property back to a lettable standard is also valid as capital.