CGT - House Sale - Home Improvements Question

Sad_Dad

I am trying to calculate the Capital Gains Tax that will be due when I sell the house I used to live in but currently rent out.

Using the HMRC calculation

https://www.tax.service.gov.uk/calculate-your-capital-gains/resident/properties/disposal-date

There is a section that allows the deduction of home improvements with an example of

'Replacing a basic kitchen or bathroom with a luxury version is normally considered an improvement'

Given that I replaced both the kitchen and bathroom nearly 20 years ago but luckily I still have the receipts, what sort of evidence would I need to show HMRC that the new rooms installed were a 'luxury version' that replaced 70's style rooms at the time?

00ec25

you would need the receipts to show how much you spent and what you actually fitted and then be able to compare that against what was there before (photos?).
https://www.apartmenttherapy.com/brief-history-of-kitchen-design-from-the-1970s-to-1980s-247464

just because you think it was luxury does not mean it was. A 1970's v a 1990's kitchen could still look identical in that it has cabinets and worktops, so how will you show the new is vastly superior quality (thereby equating quality with price obviously)?
- expensive stone worktop?
- high range appliances?
- no laminate cabinets?

or was your 70's kitchen free standing appliances?

same for the bathroom - a bath and different coloured tiles won't cut it.

Sad_Dad

Thanks for your reply, 00ec25. You also answered my other related question about this matter a few weeks ago. It is very much appreciated.

The house was built in the 70's and when we bought the house in the 90's every room was still 70's decor. The worktops, bathroom suite and carpets were all chocolate brown (possibly back in fashion now). One of my mates asked me if i had bought the house off Jason King!

The 3rd picture on your link is very similar to our old kitchen apart from the colour. Although I haven't got pictures, I have got receipts and video footage.

We purchased the house in 1996 for £80k and within 7 years we had spent around 55k.

Kitchen replaced - £20k
Bathroom replaced - £8k
Conservatory replaced (single to double glazed) - £7k
New windows (single to double) and new fascias and soffits (wood to uPVC) - £10k
Extended from 2 bedrooms to 4 bedrooms - £10k.

The last 6 years I have rented out the property so now my tenants have what might be considered an old style kitchen and bathroom.

I am not sure what is an allowable deduction as the HMRC rules seem ambiguous (if that's the right word).

I know the rules on CGT are set to change in April 2020.

Without any deductions for improvements, we are looking at a large CGT bill.

My current plan is to try and sell the house next year. The new rules state that I would have to calculate and pay the CGT due within 30 days of disposal.

Hopefully we can sell the house and claim for everything that I consider is a reasonable improvement to reduce the bill. If the tax man disputes this then I can argue my case at that point.

Pennywise

The only thing on your list that looks like allowable improvements is the £10k extension.

Replacing the conservatory, soffits/fascias, single to double glazing are almost certainly just replacements due to wear and tear so not allowable for CGT. (You may have been able to claim the costs against rental income if you did the work during the period it was rented out).

The kitchen and bathroom are debatable and will depend on the detail of the work done. If walls have been demolished to make either room bigger, then more likely to be an allowable improvement. If it's basically the same but just to more modern standards then unlikely to be allowable. So like I said, it's all about the detail. (But again, if done during the time it was rented, could have been allowed as an expense against rental income if it doesn't qualify as an improvement).

But looking at it in a different way. Was it a car crash when you bought it? I.e. was it even habitable? Just that if it was in very poor condition and you got it at a knock down price, and you needed to do all that work before you moved in to make it habitable, then it may well all be allowable as an improvement for CGT. Again, devil in the detail.

00ec25

Sad_Dad wrote: »

Conservatory replaced (single to double glazed) - £7k
New windows (single to double) and new fascias and soffits (wood to uPVC) - £

the amount expended means nothing

conservatory = revenue not capital, you replaced an existing one, single to double means nothing. It would need to be significantly larger than the old one to be classed as an improvement
windows - categorically now stated to be revenue
wood to upvc is "advancement in technology" and is a repair, not a capital improvement

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

Similarly, alterations due to advancements in technology are generally treated as an allowable repair rather than an improvement, if the functionality and character of the asset is broadly the same. For example, when single glazing is replaced with double glazing.

Sad_Dad wrote: »

Kitchen replaced - £20k
Bathroom replaced - £8k

as already discussed is a matter of great debate and slim chance of success. You and your estate agent will regard it as fixtures and fittings of the property, but HMRC may take the view it was replacement of a worn out/dilapidated structure, not capital expenditure.
After all 20k on a kitchen is a matter of personal taste, not necessity. You started with a kitchen, you ended with a kitchen/bathroom .... "functionality and character of the asset is broadly the same"... even if the colour is different.

(I'd also personally make a counter claim that if it was Formica as in pic 3, it was probably a darn sight longer lasting than some 20k "modern" MDF/chipboard thin laminate "designer" rubbish built to fall apart after 10 years).

Problems can arise where the customer does work on an old asset. A repair or replacement of a part of a building using modern materials may give an apparent element of improvement because of the greater durability, superior qualities and so forth of the new material. But the cost normally remains revenue expenditure where any improvement arises only because the customer uses new materials that are broadly equivalent to the old materials.

Sad_Dad wrote: »

Extended from 2 bedrooms to 4 bedrooms - £10k.

funny extension that it cost only 10k, but as pennywise says, probably capital

have you got your figures crossed with the kitchen cost?

Sad_Dad

Thanks to both of you for your replies.

It sounds like I might struggle to claim for most of this then.

I suspect the extension might also be on dodgy ground.

We converted 1 very large master bedroom into 3 new bedrooms, part of this included installing dormer windows. The floor space was not increased.

If I can't include that then my calculations show about another 4k added to the CGT due

jimmo

Sad_Dad wrote: »

It sounds like I might struggle to claim for most of this then.

I suspect the extension might also be on dodgy ground.

We converted 1 very large master bedroom into 3 new bedrooms, part of this included installing dormer windows. The floor space was not increased.

If I can't include that then my calculations show about another 4k added to the CGT due

There is always danger on a forum that we get our wires crossed but the way I read that is that is that you think if the £10k you spent converting 2 bedrooms to 4 is not allowable your capital gains tax bill will increase by £4k.
Given that the highest rate of CGT is 28% that's impossible even before considering PRR.
I rather wonder how you got on with the calculator in your OP. I got as far as their link to HS283 and gave up at that point. You might be better off having a go with 00ec's rather excellent worked example here.
https://forums.moneysavingexpert.com/discussion/5764759/cgt-and-letting-relief&highlight=top
As it happens, I bought a 1970s built house in the 1990s and the notes I made on the estate agents leaflet include "kitchen horrible but could live it until we can afford to improve."
Similar note for the bathroom.
In my days as a taxman I would have had a lot of sympathy with you and would almost certainly have passed all your claims for improvement without question preferring to concentrate on what I see on here as your lack of understanding of how PRR works.
Certainly in my days that was far more productive for HMRC than arguing about what was an improvement and what was a repair.
However I retired 13 years ago and times have changed.
If I were in your position I would claim the whole lot as enhancement expenditure and be prepared to fight my corner.