CGT - what is allowable?

Hello123_2

Can someone please tell me what is allowed to be deducted when calculating CGT on a property, or point me to a helpful website as HMRC aren't being helpful at all!!!!

I am primarily looking at what constitutes improvements as I am planning a full refurb and then to sell.

New windows and doors (current are rotton)?
Insulation (none atm)
Heating (none atm)
Full rewire
New kitchen
New bathroom
Roof & guttering
Drive & garden
Decorating - New flooring, Plastering, paint etc.

Solicitors fee?
Mortgage Fees?
Estate Agents Fees?
Building Reg fees?

Hope someone can help!

ceeforcat

All of them with the possible exception of Decorating. Generally and simplistically, if the work is of a capital nature they would be allowable for CGT and not against any income received by way of rental.

Back to the decorating - it would appear from the others that this was not simply a change of decor but a preparation for habitation. In this case, I would claim against my CGT. Otherwise No!

Hello123_2

ceeforcat wrote: »

All of them with the possible exception of Decorating. Generally and simplistically, if the work is of a capital nature they would be allowable for CGT and not against any income received by way of rental.

Back to the decorating - it would appear from the others that this was not simply a change of decor but a preparation for habitation. In this case, I would claim against my CGT. Otherwise No!

Thanks for your help. So mortgage arrangement fees too?

If I just put everything on the paperwork will HMRC tell me if something isnt allowable or will I get into trouble? Eg if I put decor but HMRC disagree will I get a fine?

I'm also trying to understand the primary residence rule - how long would it have to be my primary home & what proof would I need? HMRC website doesnt help

CLAPTON

well

if you are planning to do it up and then sell, cgt isn't an issue as HMRC will probably view this as trade and so income tax will apply.

00ec25

Hello123 wrote: »

I'm also trying to understand the primary residence rule - how long would it have to be my primary home & what proof would I need? HMRC website doesnt help

it is not simply based on time in residence, this has been established by case law - " There is no minimum period of occupation that would enable an individual to establish a residence." http://www.hmrc.gov.uk/manuals/cgmanual/CG64435.htm

the actual test is the quality of the occupation not just how long for, "a taxpayer must provide some evidence that his residence in the property showed some degree of permanence, some degree of continuity or some expectation of continuity". ie. You have to prove you actually settled/lived there, some of this does not really affect your lifestyle but some of it is crucial to HMRC's assessment of your claim, eg:

- you registered on that property's electoral roll (legal requirement to declare yourself somewhere but hardly definitive proof!)
- your post was sent there (so what, you could always go and get it every few days!)
- your friends expect to find you there if they call (starting to get less easy to fake)
- you commuted to work from there rather than any other place you owned or rented (not too bad if you own 2 places close together but could be very hard to fake if you work somewhere else)
- where do you spend your weekends? (is it a country cottage or is it your "home"?)
- how long have you owned it and what was it used for? (are you a property developer so subject to Income tax not CGT)
- which property does your family reside in (wife elsewhere hey?)
- where do the kids go to school (unless they are boarders of course!)
- which address do you use for car insurance (that one hey! dare to confirm if your insurance is still valid given that answer?)
- where is you doctor/dentist (you really got to the surgery when you were that ill?)
- which one do you claim second home council tax discount on (really! the more expensive one, who'd have guessed that hey!)
- and finally, how long are you claiming you lived there, 1 day/month? - doesn't stop you claiming but need a really good explanation for your life pattern, 6 months? - looking more credible, 1 year? - even more credible (unless you repeat the pattern so you look like a serial property developer), more than 2 years - unlikely to be questioned

http://www.hmrc.gov.uk/manuals/cgmanual/CG64545.htm

ceeforcat

I would take heed of what Clapton says regarding trading - you would probably get away with a 'one-off' venture and you certainly would if you used it as a main residence.

Mortgage Arrangement fees - NO!

antrobus

Hello123 wrote: »

Can someone please tell me what is allowed to be deducted when calculating CGT on a property, ....

Hello123 wrote: »

....

I'm also trying to understand the primary residence rule - how long would it have to be my primary home & what proof would I need?

CGT won't be payable at all if it's your primary residence.

I understand that the plan is to buy a property, do it up, and sell it for a profit. It is not uncommon for people to do exactly that, then occupy the property themselves, so that it becomes their primary residence, and so pocket the profit tax-free.

If you own more than one property, then you can elect which property is your main residence. So naturally you will inform HMRC that you are residing in the property that you intend to sell. HMRC have of late got rather picky about such PPR elections, and insist that taxpayers must actually have lived at the properties in question. But that's it; if you actually do own two or more properties, and really do live in both of them from time to time, it's up to you which one is your main residence. It's only if you don't make a PPR election that HMRC will look at the facts.

Of course, your real problem might be, as CLAPTON has previously noted, that HMRC will sidestep all this CGT nonsense, by deciding that you are in fact enaged in the business of property development, and that the profits made in the venture should be subject to income tax.

Let's be frank about this; if you're buying a property with the specific intention of selling it at a profit, that's exactly what you're doing. Of course, people do this all the time, and 'get away with it'. If you try and declare the profit for CGT purposes, then it's very probable that you won't, unless you try and claim that you originally intended to rent out the property, and only changed your mind when somebody made you a good offer or something like that. If you go down the 'it was my home' route, then the chances are much higher, although it helps if you aren't in the building trade or an estate agent.

All of which is, of course, nothing more than an opinion. There is no real substitute for taking proper professional advice where money is concerned.

Hello123_2

Thanks for all advice.

This would be a 2nd house - just to do up & sell on.

I've not done anything like this before but if this one goes well then I would be looking to develop more.

If i was to become a 'developer' ie 1 or 2 refurbs a year then would I be liable for just income tax? or just cgt? or both?!

Sorry i'm not clued up on tax & the hmrc website just fries my brain!

CLAPTON

just income tax