Offsetting capital gains tax

TINKERBELL

Hi can anyone advise please? I own 2 properties and am in the process of selling one of them, a flat. We have never rented this property out, it is our second home. Over the 10 years we have owned the flat we have had to pay a considerable amount towards a new roof, alarm system etc. From what I can gather, we can't offset annual maintenance charges against capital gains tax but does anyone know if the aforementioned costs can reduce the CGT bill as capital input?

Davide123

Any capital expenditure can be offset... Along with solicitors fees etc.

holly_hobby

You may offset costs that have improved the value of the property, as long as that improvement is still reflected in the property at the time of sale and not deductable elsewhere (with supporting documentation receipts etc). To which I'm not sure the addition of an burglar alarm would be classed as a asset improvement - but HMRC will guide.

You may also offset associated acquistion, professional and disposal costs/fees.

Reliefs are your annual unused CGT exemption (£10,900) each, plus any prev nominated (upto 4th anniversary) CGT losses.

Hope this helps

Holly

TINKERBELL

Hi Holly thank you for your reply. Is the installation of a fire alarm system, repairs to the roof, painting of the outside of the building etc, can these all be offset costs? We have paid a proportion of the total cost along with the other flat owners.

Also is the £10,900 each? Hence £21,800 per couple?

Can we offset estate agents fees on selling as well as the solicitors fees?

holly_hobby

Yes - as you can see not ALL outlay is deductable.

General property maintance and decoration is not strictly asset improvement, so therefore not a permitted CGT deduction under current regs.

The capital outlay must be in connection with improving the asset ( and as I say must remain/form part of the property at point of sale).

Yes, CGT exemption is £10,900 per person per tax yr (6 April 2013 - 5 April 2014) - which is technically £21,800 per couple, but don't forget your personal tax return is always on an individual basis of liaiblity.

Yes you can offset associated estate agt fees and solicitors/professional fees.

Hope this helps

Holly

CLAPTON

just to be clear
in your first post you say 'I own' but subsequently you say 'we'.

for tax purposes it best to be clear about ownership.

also have you ever lived in the property as your primary or sole residence ?

holly_hobby

Beneficial ownership is the defining factor for CGT purposes.

Hope this helps

Holly

00ec25

holly_hobby wrote: »

Beneficial ownership is the defining factor for CGT purposes.

Hope this helps

Holly

in other words if you have made any form of financial contribution towards "your wife's" property then if HMRC turn nasty, or if it is advantageous for you to do so, the CGT liabilty could already be split, nothwithstanding the fact legal ownership is still 100% in her name

although illustrated in the context of divorce, this is the example:
http://www.hmrc.gov.uk/manuals/cgmanual/CG65310.htm

CLAPTON

00ec25 wrote: »

in other words if you have made any form of financial contribution towards "your wife's" property then if HMRC turn nasty, or if it is advantageous for you to do so, the CGT liabilty could already be split, nothwithstanding the fact legal ownership is still 100% in her name

although illustrated in the context of divorce, this is the example:
http://www.hmrc.gov.uk/manuals/cgmanual/CG65310.htm

yes maybe, but there does seem a lot of room for debate and argument which many people would be ill equipped to do without expensive advice.

the full facts of the ownership and residency situation would be useful

holly_hobby

Proving beneficial ownership could/would be supported by the following, although HMRC do not consider any one singular fact as definitive ... each case is assessed on an individual basis ...

Ok ... lets explore ...

Legal title ... but this is not the defining basis of CGT liaiblity as we know, but one could assume that if you are the legal owner it is reasonable (in the absence of any other provided evidence) the legal owner is also the benefical owner..

Joint occupation of the property

Joint receipt of any rental income (form 17, and/or split declaration of rental income within each annual SA, would also be good additional evidence in respect of civil partners/married couples)

Provision of funds to purchase and maintain/improve i.e proof of assisted deposit/assistance with mge payments/associated costs (eg - they came from your joint account)

Reciept of sale proceeds on disposal for joint benefit (paid into a joint account would again provide good evidence of joint benefit).

Its a suck it and see exercise, and obv the meeting of several of the above points will aide your claim, as you can see simply effecting a legal TOE between you (which will incur a TOE fee circa £400/£500) may be unnecessary and costly, and on its own won't necessarily meet the requirements for accepted split CGT (if HMRC deem Mrs isn't really a beneficial owner, and any TOE was a contrived tax avoidance exercise) - just want to save you pennies if I can.

As always, please discuss your own situ with your tax practioner.

Hope this helps

Holly x

TINKERBELL

My husband and I both own the property. It has never been our primary residence just our holiday home near our family.