Improving a BTL before selling it (?)

IRememberItWell

When the current tenants leave, we may well sell the BTL terraced house that we've had for some 20 years. Necessary repairs and renewals have been carried out as required over the years and claimed as an expense. However, the question now arises as to whether it will be better to sell the house as it currently stands or to carry out some improvements.

My question is this: if improvements are carried out after the tenants have left, can such expenses be off-set against the CGT that will be incurred when the house is sold?

Comments greatly appreciated.

IRIW

00ec25

let us hope that after 20 years you know the difference between a "repair" and an "improvement"....

improvement = capital = yes cost is part of the CGT calculation

repair = revenue = deduction for income tax property profits (see "post cessation")
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2030

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2510

theartfullodger

Ask a couple of selling agents round for their views. And to enquire what % they will want.


Buy a book on property taxes. It will save you time & money.


There are more than 10 taxes a landlord may pay: Don't just worry about one or two!

Slithery

Unless you are a seasoned developer who can do all of the work yourself then it's pretty much guaranteed that any money you put in will be more than the increase in price - and depending on what your view of 'improvements' are you may well be evading tax as well.

What exactly are the improvements that you are contemplating?

gwynlas

Depending on area property should show well against others on with approved agent. Spending a £000 or 2 might mean not having to accept low offer as property looks like ex rental. If property is unfurnished it might look better dressed. Many prospective buyers have no idea of room sizes, whether bedrooms double or single, layout of lounge diners etc.

IRememberItWell

Thanks for the replies and the helpful links.

Yes, I'm aware of the difference between repairs/renewals on the one hand and improvements on the other; I have only ever carried out the former. If we decide to sell, any improvements will carried out when the current tenants have left.

For example:
The current kitchen is OK but has a separate cooker, dated cabinets and a metal sink. The bathroom could do with new units to make it look nice. The downstairs would be improved by replacing the carpet with wooden flooring. The house would benefit from additional power sockets. Externally, a raised teak patio would make the small rear garden more attractive.

Regarding the advice from 'Slithery' above, I am no property developer and would not contemplate doing anything myself other than internal decoration. But if I get receipted invoices for the above improvements, I take it that this cost will off-set a proportion of the CGT that will be payable. One thing I don't know: if I were to spend £20K on doing up the house, would the CGT payable be £20K less than than it would otherwise have been? I mean is the saving pound-for-pound?

'Slithery' comments: "Unless you are a seasoned developer who can do all of the work yourself then it's pretty much guaranteed that any money you put in will be less than the increase in price". This suggests that it would be worthwhile spending money on the house. Is this a general rule?

I do take the point that it will be advisable to get the view of a couple of agents but would appreciate any other comments.

IRIW

00ec25

IRememberItWell wrote: »

Thanks for the replies and the helpful links.

Yes, I'm aware of the difference between repairs/renewals on the one hand and improvements on the other; I have only ever carried out the former. If we decide to sell, any improvements will carried out when the current tenants have left.

For example:
The current kitchen is OK but has a separate cooker, dated cabinets and a metal sink. The bathroom could do with new units to make it look nice. The downstairs would be improved by replacing the carpet with wooden flooring. The house would benefit from additional power sockets. Externally, a raised teak patio would make the small rear garden more attractive.

Regarding the advice from 'Slithery' above, I am no property developer and would not contemplate doing anything myself other than internal decoration. But if I get receipted invoices for the above improvements, I take it that this cost will off-set a proportion of the CGT that will be payable. One thing I don't know: if I were to spend £20K on doing up the house, would the CGT payable be £20K less than than it would otherwise have been? I mean is the saving pound-for-pound?

'Slithery' comments: "Unless you are a seasoned developer who can do all of the work yourself then it's pretty much guaranteed that any money you put in will be less than the increase in price". This suggests that it would be worthwhile spending money on the house. Is this a general rule? so are you a qualified electrician able to sign your own certifications?
Your comment seems to imply you missed the point, the general rule is if it costs more to do than the price will rise then don't do it.

I do take the point that it will be advisable to get the view of a couple of agents but would appreciate any other comments.

IRIW

clearly you do not know the difference, all of those are revenue expenditure, not capital

did you not read the links?

after 20 years have you really never bothered to find out even the basics about CGT? https://www.gov.uk/capital-gains-tax

BoGoF

As above if you think replacing a carpet with a wooden flooring is an improvement for Capital Gains purposes then you are very wrong. I hate to think what other gems have been going through your Tax Returns all these years.

Retired_Mortgage_Adviser

OP - A quick google on other forums will tell you that there is no clear cut answer to your question.

I would recommend asking the question on propertyhub forum or landlordzone as there are more professional landlords there who will have come across similar situations and might be able to provide more relevant advice.

GDB2222

There do seem to be people here who like to tell you off for imaginary failings, rather than providing help.

Slithery unfortunately mistyped his advice. What he meant to say was that you are unlikely to get back your expenditure on improvements. As a general rule I agree.

Some expenditure is worthwhile, such as repainting, especially as you can do it yourself. Highly unlikely that a deck is worthwhile. The kitchen and bathroom- how can anyone help without pictures of what's there? The floor, likewise. As a general rule, if it's liveable with, it's probably best to leave it alone.

I suggest you look on Rightmove and compare properties like yours, some dowdy and some spruced up. Especially actual sale prices, not asking.

Don't bother asking the estate agents for advice, as they just want to get the property on the books. They'll tell you to do nothing at all.

GDB2222

My experience is that buyers underestimate the cost of doing a place up, or they value the opportunity to do their own thing. So, even if a place needs a new £5k kitchen, they'll only knock say £2k off what they offer. Providing it's liveable in for the time being.

Capital gains tax is levied on your gain. If you are liable at the 28% rate, spending say £10k will reduce the tax by 28% of £10k, ie £2800.

Of course, there's no point spending that £10k unless you push the sale price up by at least £10k.

Bear in mind that speed of sale is also important. You'll have all your usual expenses plus rates to pay, plus cost of heating to stop it deteriorating.