Capital gains tax

Sambe1

Hi, long time lurker but new to posting so hope I'm in the right place. My husband and I bought a house as an investment with his redundancy money 3 years ago. The house was derelict when purchased, it had been squatted in, and the back had collapsed due to a leaking water supply pipe undermining the footings. Inside, the house was effectively a stinking, rubbish filled (waist high in every room) shell. It was so bad it had a prohibition order on it. My husband is more than a bit handy and has effectively singlehandedly rebuilt the house - to a fantastic standard.
We paid 30,000 for the house at auction and estimate it would now sell for around 80,000.

We are letting the house out and don't plan to sell it for 10 plus years. We know.there will be a cgt liability but have a vague idea that the some or all of the 50,000 gain may be excluded - house prices have been fairly static over the period so we would argue that all the gain is the result of his time, effort and bit of money he has put into it.

If this is correct? then how, if we need to, do we prove it, presumably to HMRC when we sell (and separate it from any gains we may also make from house price growth)? Is it worth getting a few estate agents valuations and filing them away so that we can attempt to show the increase over the 3 year period.

I don't know what's relevant but my husband is not self employed (he is in effect a house husband). He has put mostly time into the property rather than money - thanks to ebay, recycling and help from friends with gas and electrics so doesn't have a stack of receipts to reflect the value of work put in.

Are we barking up the wrong tree here?

Any thoughts/advice appreciated.

csgohan4

https://www.gov.uk/capital-gains-tax/overview


if you bought the house for 30k and sell for 80 k your gain is 50k and therefore will be taxed accordingly irrespective of time spent on it minus your annual allowance of course, Unless it is your main home.

Kynthia

You don't get to deduct the gain resulting from the work you've done, as far as I'm aware you get to deduct the costs of the capital works as well as the buying and selling costs. You do this by keeping evidence of these costs when you cone to sell and declare the taxable gain.

AnotherJoe

Your entire supposition is based on a very cute idea, that CGT is applicable only to rises that aren't due to your hard efforts. Apart from the impossibility of attributing each particular bit of gain to happenstance or hard work, it simply doesn't work like that.

The question is, is there a gain, after expenses? Doesn't matter if the gain is due to your hard work, rampant house price inflation or Martians.

So to answer your closing question, you are so far off base there's no tree and no dog.

booksurr

Sambe1 wrote: »

Are we barking up the wrong tree here?

One is tempted to say LOL with bells on, yes you are....

you purchased a property with a view to doing it up. That immediately suggests that you would fall into the scope of being property developers and so subject to income tax, not CGT

however, you then state that you intend to let the property for upwards of 10 years. Ok in tax liability terms that unquestionably makes you into property investors, not developers, so liable to CGT

CGT is a tax on GAINS - as suggested by its very name. If you buy for £X, spend £Y on "works" and sell for £Z then your taxable gain = z - y - x - personal tax free allowance (currently £11,000) = taxable gain

as for barking, (mad?) it is a shame you cannot use google since your question is simply a matter of finding out facts, not a failure to understand what you have not (yet) read?

CGT: the basics https://www.gov.uk/capital-gains-tax/overview

and before you ask, no your husband cannot charge for his time in doing the works as he is not a trader paying tax on his labour

Sambe1

Thanks, I have read the hmrc guidance, I suppose my supposition was around whether my husband can somehow value his labour - and you have said he can't.

If we had paid a builder we estimate the cost of the improvements to be around £40k.

It does beg the question what evidence would be acceptable to hmrc in 10 years time - a pile of tatty invoices and receipts from "Long Gone Builders Ltd"?

csgohan4

Sambe1 wrote: »

Thanks, I have read the hmrc guidance, I suppose my supposition was around whether my husband can somehow value his labour - and you have said he can't.

If we had paid a builder we estimate the cost of the improvements to be around £40k.

It does beg the question what evidence would be acceptable to hmrc in 10 years time - a pile of tatty invoices and receipts from "Long Gone Builders Ltd"?

Those builders will have a presence on companies house in the past and have a paper trail while you cannot in regards to self labour.


It's not what you want to hear, but it is still far cheaper to do it yourself even with the tax break if you got someone else to do it.