CGT on Buy to Let Sale

scattycat69

A property bought in 2003 as a buy to let and now sold in 2018



Original price £141,000
Sold price £150,000 (market value £250,000)

Costs associated with buyng and selling £6585
Renovation costs: £24,750
No income, just a pension £12,000 p.a.



My questions are:
In the capital gains online calculator it asks if the property was sold at a lesser value to help the buyer (yes it was sold to a family memeber and a gifty of £100k equity to make the property purchase viable) I assume this makes no difference as the market value is still the value to be used in calculations, but should this question be answered yes or no then?

Does the pension amount received for the year need to be included as income or would this be shownn as zero taxable income?


Many thanks in advance

kidmugsy

scattycat69 wrote: »

Sold price £150,000 (market value £250,000)

Can you explain?

00ec25

so you have sold to a connected person a "family member" - check that actually means is one of these connections listed here: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14580

if yes then the selling price is the 250k market value

the amount of tax due is based on your total "income" for the year, so yes you must declare your pension since that forms part of your income

it may help if you read this then you may better understand what the calculator is doing, rather than simply being given a number whose origin is a mystery:
https://forums.moneysavingexpert.com/showpost.php?p=73621764&postcount=2

Keep_pedalling

You can!!!8217;t offset renavation costs against capital gains

scattycat69

The £100k was a equity gift

scattycat69

Thank you to all those that replied. It all helps greatly. The value to be used is £250k, pension is included in the taxable income amount and the renovation costs have been included.
Just wanted to make sure it was all above board and nothing missed out.

Thanks again

00ec25

scattycat69 wrote: »

the renovation costs have been included.

Just wanted to make sure it was all above board and nothing missed out.

Thanks again

Given the property was let from the outset why do you think the "renovation" costs are valid capital expenses as opposed to revenue repair costs?

scattycat69

The costs are improvements rather than repair costs, such as a new bathroom, kitchen, garden landscaping. The repair and maintenance costs haven't been included, i.e. general redecoration, fence repair. Improvement costs that can be attributed to the increase in the house value

00ec25

scattycat69 wrote: »

The costs are improvements rather than repair costs, such as a new bathroom, kitchen, garden landscaping.

no sorry that is no where near enough to confirm capital costs.

You need to be very careful when using such generic terms as those since there are key principles which govern capital v revenue, one main one being: "the work is a repair and not an improvement if after the work is carried out, the asset can just do the same job as before"
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46920
this is also referred to in the context of: has the character of the asset been altered?
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46950

So....
"new" bathroom - do you mean a new bathroom was added where none existed before? if yes = capital

if no, and thus you simply mean you replaced the existing bath etc with new fittings, that is not an improvement, that is a repair. You had a bathroom before, you still have a bathroom afterwards.

kitchen - same applies
"Sophia has simply replaced the old kitchen with a modern equivalent. This is a repair..."
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46911

landscaping - less easy to define what is the "asset" and therefore how it has been repaired or improved. It has very little to do with your thought that the property value was enhanced by a "nice" garden, and everything to do with the precise nature of the work undertaken and the scale of that work. Creating a driveway, patio and decking where there was none before, yes, capital. New plants, new turf, landscaping some slopes or other earthworks to improve "visual amenity", less clear...




Also, consider - when was the work done? before, during or after the letting period?
Depending on timing it should have been claimed as revenue expenditure against rental income. The key exception to the above is if the work took place before the letting commenced and it is a matter of fact that the letting could not start until the work was done because the property itself was in no fit state to let. Please read on before saying yes that applies. For a property to be in no fit state the purchase price must reflect the fact it needed "work" doing to it. It is not enough just to say oh but I want to put a "nicer" bathroom in so I get a better class of tenant. That is not a capital improvement

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2030

scattycat69

Thanks 00ec25, that is a very comprehensive post and has given much to consider.
Can I ask, surely if these upscaling renovations had a positive impact on the increase in value of the property and that similar properties nearby that have not had these improvements made are valued less, does this not constitute capital rather than repairs?
The kitchen I would say was only replaced and not really improved on, so yes I could see that this may not be pertinent to include but the bathroom was significantly improved as was the garden as this was originally just a mud bath and weeds.

uknick

What did you do to the bathroom to significantly improve it?