Selling, CGT and Proof of Expenditure

ck_uk

When selling and calculating CGT, I believe you can deduct the following costs:

"Improvement costs to increase the value of the property - but not normal maintenance costs such as repairs or decorating"

"Any costs of extending or otherwise improving the property"

Would you need to show the taxman actual receipts for money spent, or would it be sufficient to show bank statements showing amounts spent backed up by a detailed spreadsheet of expenditure with dates and amounts?

Thrugelmir

Invoices along with corresponding proof of payment.

The method you are suggesting wouldn't suffice.

ck_uk

We spent about £5k on improvements (necessary items which were missing, plus some redecoration costs which I know we can't claim for). I logged all the receipts and amounts but unfortunately no longer have the actual receipts.

We also paid another £5k approx to a chap we know for various jobs which needed doing. We have a signed receipt book showing monies paid to him and dates, but nothing which is an actual company headed printed invoice or receipt with company name on it. This was all paid in cash.

Also some roofing working approx £2k which was again paid in cash, we do have the original quote for this work but no printed receipt for this, although I'm sure we could obtain this retrospectively from the roofer.

So in the eyes of the taxman, do we have to 'write off' all the above and take the hit?

booksurr

ck_uk wrote: »

We spent about £5k on improvements (necessary items which were missing, plus some redecoration costs which I know we can't claim for). I logged all the receipts and amounts but unfortunately no longer have the actual receipts.

define "necessary"?
receipts would be required to support your claim IF HMRC ever challenge you over the veracity of your tax return - it is after all called self assessment for a reason. You do not submit anything other than the numbers to HMRC, but they have the power to get very nasty indeed if they pick you out for a random check and you cannot support those figures with complete paperwork

ck_uk wrote: »

We also paid another £5k approx to a chap we know for various jobs which needed doing.

£5K of various jobs does not sound like capital improvements to me, it sounds more like necessary repairs

ck_uk wrote: »

We have a signed receipt book showing monies paid to him and dates, but nothing which is an actual company headed printed invoice or receipt with company name on it. This was all paid in cash.

HMRC will love that. So does this chap declare the cash against his own tax? Does this receipt have his name and address on it ?

ck_uk wrote: »

Also some roofing working approx £2k which was again paid in cash, we do have the original quote for this work but no printed receipt for this, although I'm sure we could obtain this retrospectively from the roofer.

why do you think £2k is capital - it barely sounds enough to pay for a repair let alone pay for the capital cost of a new roof

ck_uk wrote: »

So in the eyes of the taxman, do we have to 'write off' all the above and take the hit?

not necessarily, some of it is probably repairs anyway and if supported by better receipts than you currently have could still be claimed against your income tax

ck_uk

Thanks for the response, much appreciated

By "necessary" and "various jobs" this encompassed finishing works on an existing extension which was incomplete and uninhabitable, and installation of downstairs WC which involved some groundworks for drainage. Also some electrics.

I don't know anything about our chaps tax affairs, the receipt book has his signature on for each payment made but no address details as such, although we have a printed quote with his company details on for the work to be carried out. Don't suppose the HMRC will be interested in that though.

The roofing costs were actually for rework of the existing extension roof which building regs wouldn't pass in it's current state.

We want to be totally above board as far as HMRC is concerned and do things the right way, never completed a self-assessment form before either..

booksurr

ck_uk wrote: »

Thanks for the response, much appreciated

By "necessary" and "various jobs" this encompassed finishing works on an existing extension which was incomplete and uninhabitable, and installation of downstairs WC which involved some groundworks for drainage. Also some electrics.

I don't know anything about our chaps tax affairs, the receipt book has his signature on for each payment made but no address details as such, although we have a printed quote with his company details on for the work to be carried out. Don't suppose the HMRC will be interested in that though.

The roofing costs were actually for rework of the existing extension roof which building regs wouldn't pass in it's current state.

We want to be totally above board as far as HMRC is concerned and do things the right way, never completed a self-assessment form before either..

OK lets start again

what is the property you are selling and why is it subjec t to CGT? is it:
a) your second home, or
b) a property you used to live in which is now empty, or
c) a property you used to live in which was then let out and you are now selling up.

the costs of remedial works to an extension may or may not be classed as capital costs depending on the nature of the property and the history of the extension.

More detail required or simply accept that you cannot claim because you don't have the paperwork unless you take a gamble that HMRC will not pick on you for checking and so your lack will never be found out - pragmatic question: how lucky do you feel????

ck_uk

It was bought approx 2 years ago as a buy to let (BTL mortgage in place), however we've never actually let it and have decided not to as the yield would be low. We are now considering what would be the best option:
1. Sell
2. Move in ourselves (obviously not with BTL in place), and let own property. The thinking here is that, when we do decide to sell, this would be our main home and thus we could potentially avoid CGT altogether and the lack of paper receipts wouldn't be an issue. Just need to understand the rules around this.

booksurr

ck_uk wrote: »

It was bought approx 2 years ago as a buy to let (BTL mortgage in place), however we've never actually let it and have decided not to as the yield would be low. We are now considering what would be the best option:
1. Sell
2. Move in ourselves (obviously not with BTL in place), and let own property. The thinking here is that, when we do decide to sell, this would be our main home and thus we could potentially avoid CGT altogether and the lack of paper receipts wouldn't be an issue. Just need to understand the rules around this.

so I assume "we" bought it means it is owned by you and your partner. In which case you each have your £11,000 personal allowance for CGT so first off will your net taxable gain be more than £22,000??? If not then everything else is irrelevant.

net taxable gain will be:
actual selling price - EA and legal fees associated with the sale - original purchase cost - EA and legal fees associated with the purchase - SDLT paid at time of purchase (- cost of allowable capital improvements) = net taxable gain

CGT is then:
your share of net taxable gain - your 11,000 allowance. if that figure is >£0 you will have to pay CGT at 18% and/or 28% depending on the figures and your partner will have to do the same on her share of the gain

After only 2 years of ownership and unless we are talking a London property, I doubt your tax exposure is big enough to worry about

options
1. if sold now it has 2 years worth of price inflation - see above as to whether that means the taxable gain is >£0

2. if you move in now then the first 2 years of its ownership will remain liable to CGT because it was not you main home at that time. main home exemption applies for the period you actually live in it, not for the entire period you own it just because at some point in that period you lived there - the exception is around the final 18 months of ownership of a property that you did once live in. there is no point explaining that unless you give some figures and we can see if you have a problem that needs managing in the first place...

ck_uk

Option 1 seems like the best bet then. Have I got my calculations about right using the following approx figures?

A Purchase Price 150000.00
B Purchase Costs (Fees and Stamp Duty) 3000.00
C Refurbishment Costs 13000.00
S Sale Price 200000.00
D Selling Costs (EPC, Solicitors & Agents Fees) 3000.00
Taxable Gain (S-A-B-C-D) 31000.00
Annual Exempt Amount (x2) 22000.00
Amount Liable to Tax (Gain-Annual Exempt) 9000.00
50% Lower Rate CGT Payable (18%) 810.00
50% Higher Rate CGT Payable (28%) 1260.00
Total CGT Payable 2070.00
Profit (Amount Liable-Total CGT Payable) 6930.00
Actual Profit (Exemption Amount Added In) 28930.00

ck_uk

Sorry to resurrect this one but still have some questions..

1. If we can't prove costs of refurbishment on a property (no receipts), could the issue be negated by living there and declaring as the PPR? So when it does come time to sell, the refurb costs don't come into the equation?

Also, in the above scenario, how do we calculate the amount of CGT we would have to pay when selling? I understand we'd owe CGT for the time since we've owned it (2 years), but if we lived there ourselves for a year (say), how do we calculate the CGT payable? And would the CGT amount be the same as if we sold it without having ever lived there at all?

2. If we sold our own home, there would be no CGT to pay as it's always been our PPR. However, if we rented it out, does CGT come into play for the period of it not being our PPR when we eventually sell?

Thanks