CGT on rental - what can be included in purchase price?

LittleGreyCat

I've searched through recent posts and I can't find this specific question.

The CGT calculation is based on the purchase price and selling price.

I see that you can increase the purchase price and decrease the selling price by including all legal and agents fees (plus, I assume, survey costs).

Is there anything else that you can include?

In my case, we bought a house just prior to repossession which was in a very poor state - very dirty kitchen, ancient gas back boiler with faults and leaks between the central heating circuit and the hot water, poor sanitary ware; you probably get the picture.

We spent a significant amount on renovation before the house was up to an acceptable standard.

Can any of this money be included in the purchase price when calculating CGT?

Oh, and we lived in the house for 3.5 years before (as with many others) we wanted to sell but were caught in the housing crash. So we are reluctant landlords.

Other threads, HMRC documents and an Excel spreadsheet seem to have the calculations sorted out; just checking what the purchase price should be

Bluebirdman_of_Alcathays

LittleGreyCat wrote: »

I've searched through recent posts and I can't find this specific question.

The CGT calculation is based on the purchase price and selling price.

I see that you can increase the purchase price and decrease the selling price by including all legal and agents fees (plus, I assume, survey costs).

Is there anything else that you can include?

In my case, we bought a house just prior to repossession which was in a very poor state - very dirty kitchen, ancient gas back boiler with faults and leaks between the central heating circuit and the hot water, poor sanitary ware; you probably get the picture.

We spent a significant amount on renovation before the house was up to an acceptable standard.

Can any of this money be included in the purchase price when calculating CGT?

Oh, and we lived in the house for 3.5 years before (as with many others) we wanted to sell but were caught in the housing crash. So we are reluctant landlords.

Other threads, HMRC documents and an Excel spreadsheet seem to have the calculations sorted out; just checking what the purchase price should be

These all sound like costs that are not capital in nature (cleaning a dirty kitchen is hardly a capital improvement!). Such costs can be used to lower profit on your income tax computation, but not set against CGT.

LittleGreyCat

Bluebirdman_of_Alcathays wrote: »

These all sound like costs that are not capital in nature (cleaning a dirty kitchen is hardly a capital improvement!). Such costs can be used to lower profit on your income tax computation, but not set against CGT.

Ummm......the kitchen was so bad that there was no hope of cleaning it. It went straight into the skip.

You were specific only about the kitchen - is central heating a capital cost? Is replacing the bathroom and toilet?

I have read elsewhere that built in kitchen appliances are considered to be part of the structure of the house - are these capital improvements.

Bottom line - what would be considered to be a capital improvement?

Bluebirdman_of_Alcathays

There is no bottom line - it's a grey area. I was specific - I said none of the things you've listed sound like they are capital improvements. Your accountant may disagree with me, and have a different interpretation.

silvercar

The general rule is that repairs/ maintenance are allowable against rental income and improvements against capital.

So the first fitted kitchen would be capital expense, replacing a worn out fitted kitchen would be maintenance.

Similarly replacing a boiler would be maintenance, installing central heating for the first time capital.

Maintenance you did for you to be able to live comfortably there, a few years before renting it out would be neither allowable against income or capital.

kinger101

As a starting point, do the CGT calculation without any enhancement costs. If it's nil or negligible, don't think about it any further.

Otherwise, you need to look at S38(b) of TCGA;

the amount of any expenditure wholly and exclusively incurred on the asset by him or on his behalf for the purpose of enhancing the value of the asset, being expenditure reflected in the state or nature of the asset at the time of the disposal, and any expenditure wholly and exclusively incurred by him in establishing, preserving or defending his title to, or to a right over, the asset,

The isn't anything in the legislation barring repair and maintenance costs (contrary to popular belief) but it's difficult to say a kitchen you installed 5 or 10 years ago is now reflected in the current value of the property. I think you're pushing it unless you did something major that made the house habitable.