CGT on sale of 2nd property

Heidiho

Evening everyone

I’d love to hear from anyone who has ever found themselves in a similar situation to us please!

Me and hubby bought a holiday home in Cornwall 3 years ago. It was a bit of a wreck and we spent a good £25k doing the place up (damp proofing, upvc windows//doors/fascias, carpets throughout, garden landscaping, new kitchen/bathroom etc).

The house was only ever used by me and hubby as a bolt home and has now been sold. The gross profit (between purchase and sale price) is just over £50k.

From what I have read on the internet we are liable for CGT on the full gross profit (less our respective CGT allowances and buying/selling fees), Which I have no objection to whatsoever if that is the case.

However, hubby is self employed and uses an accountant for his tax stuff. Said accountant has indicated that we can also claim back expenditure on the house (we have the receipts) and has said to hubby that we should pop in to discuss further.

As a complete novice to this type of thing - never filled out a tax return before and never had any CGT to declare until now - I don’t like to say to an accomplished expert “that doesn’t sound right to me”.

Has anyone else been in this position before? If so, how did you proceed?

In case it’s important, we are both basic tax rate payers.

Thanks

Pennywise

Yes, the costs of the improvements can also be deducted from the "profit".

Baozhai

Profit is the most important thing but yeah it will be deducted.

Sibbers123

You'll have to distinguish between capital and revenue expenditure. The capital expenditure will be deductible, the revenue will not.

The capital expenditure will be any improvements to the property - essentially work that enhance the property's value. The fact the property was a 'wreck' when you bought it would suggest to me that the majority of the expenses will be deductible as capital expenditure.

Heidiho

Thanks all. It seems as though I was perhaps being overcautious with my thinking as I wasn’t really sure what qualified as an improvement. If windows, new kitchen/bathroom/carpets counts as capital expenditure then that will help a lot

00ec25

Heidiho wrote: »

If windows, new kitchen/bathroom/carpets counts as capital expenditure then that will help a lot

none of those are capital improvements, they are all repairs
a repair is to replace something that already existed like for like

to be a capital improvement means the creation of something which did not exist before.
To claim an "improvement" in a replaced item there must be a very significant difference in the nature of the new item and not just use of "modern" materials
eg
- single glazed to double glazed windows are expressly not improvements
- a granite kitchen worktop replacing a laminate one is not an improvement
- solid gold bath taps replacing steel ones are not improvements
- Carpetright's best carpet replacing a worn Axminister is not an improvement


read this, it is from the perspective of whether the cost can be claimed against income tax on rent when letting, but the principles are the same
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2030

lincroft1710

00ec25 wrote: »

Carpetright's best carpet replacing a worn Axminister is not an improvement

But an Axminster replacing worn Carpetright is most definitely an improvement, but not a tax deductible one!

00ec25

lincroft1710 wrote: »

But an Axminster replacing worn Carpetright is most definitely an improvement, but not a tax deductible one!

agreed, it would be an undoubted improvement

Sibbers123

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

'A property acquired that wasn’t in a fit state for use in the business until the repairs had been carried out or that couldn’t continue to be let without repairs being made shortly after acquisition.' is an indication of capital expenditure.

On the basis the property was a 'wreck' and it wasn't in a fit state for use, then this indicates capital expenditure as the purchase price would've been reduced accordingly to reflect the fact the property was a 'wreck'.

Relevant case law is: Odeon Associated Theatres Ltd v Jones and Law Shipping Co Ltd v CIR

I know this is the property income manual, but the same principles for revenue and capital expenditure apply.

Heidiho

Thanks again all. t’s true to say that the price we paid for the house was reduced due to its condition. The valuation came back about £20k less than what we offered due the property’s current state at that time (offered/agreed £130k, valuation £110k).

There was an issue with damp and we spent over £6k on damp proofing the whole of the down stairs, and subsequent replastering. Is this where our capital expenditure would end perhaps?

Things like The windows and kitchen were very shabby but not beyond use so it sounds as though these may be considered as cosmetic/wear and tear expenses.