Proof of Improvement Costs

roadweary

Hi,
I have a property that I bought back in 2006 that I lived in for a couple of years and then rented out.  I got a lot of renovation work carried out including:

• Getting planning permission for a drive with direct access to the road (my son is disabled)
• Installing a drop kerb
• Creating a block work drive where previously there was a garden (JCB for removal of soil / old fences / hedges etc)
• Ground works for a sliding gate (the only way to create access to the property that was practical and complied with planning regulations)
• Custom fabricated electric gate
• Changing out the old storage boiler system for a combi boiler and installing new pipework / extra radiators
• Tearing out old bathroom - knocking down airing cupboard - combining into a new bathroom - new layout, pipes, installation of shower and bath etc.
• Replastering most artex ceilings
• Pulling off wallpaper and replastering the walls flat
• Replacing old nasty internal doors with modern firedoors

This is just to give an idea of the extent of the works / re-modelling, it's not an exhaustive list.
The issue is CGT if I ever sold the property - I don't plan to, but you never know what might happen in the future.
Some of the work was paid for in cash (don't say it, sometimes you just have to get stuff done the most economic way you can manage...), some of the original receipts etc have been lost. 
Some receipts were scanned and stored on a hard drive that since got infected a few years back with ransomware. I still have the drive, but nobody will touch it.  1. It's too dangerous to plug it into a machine and 2. the encryption will be unbreakable.
I'm sure I could sit down and come to a reasonable estimate of the total cost of works.  The question is, how stringent is the burden of proof to back that up?
On a slightly different point, the property will pass to my son when I die.  If the property were then sold on his behalf, would it still be subject to CGT?  Again, because someone would need to demonstrate the allowable expenses that were incurred in the renovation / re-modelling.
Thanks,
R

Pennywise

Re CGT, it depends whether your tax return is selected for investigation - if not, the figure you put in for improvements will never be questionned.  If it is selected, then it depends on the tax inspector's attitude and what proof you do have, i.e. before & after pictures, what records you can produce etc - it would be a matter of negotiation as to how much the inspector would accept without proof.  Of course, the bigger the figure you claim for improvements, the more likelihood of it being challenged!

Re it passing to your son on your death, CGT is irrelevant, it passes at market value, no loss/no gain.  Dying is actually the most tax efficient way of avoiding CGT!  CGT would only come in if you sold it before you die.

Jeremy535897

To qualify for a deduction, any improvements have to be capital in nature, not replacements, and have to be reflected in the value of the property when it is sold, so an extension is an obvious example, but things like dropped curbs are not. Nor are better doors, a better bathroom, a better boiler etc. These items are maintenance, and items like boilers are always an improvement on the previous one, as technology moves on. Replastering artex is a change in fashion, not an improvement per se (although everyone thinks so at the moment). The electric gates might qualify, and you might then throw in ancillary items like the dropped curb, but as has been said before, if HMRC enquire and you have no proof of what these items cost, agreeing a deduction might be a struggle.

The legislation is in section 38 TCGA 1992:

(1)Except as otherwise expressly provided, the sums allowable as a deduction from the consideration in the computation of the gain accruing to a person on the disposal of an asset shall be restricted to—

(a)the amount or value of the consideration, in money or money’s worth, given by him or on his behalf wholly and exclusively for the acquisition of the asset, together with the incidental costs to him of the acquisition or, if the asset was not acquired by him, any expenditure wholly and exclusively incurred by him in providing the asset,

(b)the amount of any expenditure wholly and exclusively incurred on the asset by him or on his behalf for the purpose of enhancing the value of the asset, being expenditure reflected in the state or nature of the asset at the time of the disposal, and any expenditure wholly and exclusively incurred by him in establishing, preserving or defending his title to, or to a right over, the asset,

(c)the incidental costs to him of making the disposal.

roadweary

Jeremy535897 said:

To qualify for a deduction, any improvements have to be capital in nature, not replacements, and have to be reflected in the value of the property when it is sold, so an extension is an obvious example, but things like dropped curbs are not. Nor are better doors, a better bathroom, a better boiler etc. These items are maintenance, and items like boilers are always an improvement on the previous one, as technology moves on. Replastering artex is a change in fashion, not an improvement per se (although everyone thinks so at the moment). The electric gates might qualify, and you might then throw in ancillary items like the dropped curb, but as has been said before, if HMRC enquire and you have no proof of what these items cost, agreeing a deduction might be a struggle.

The legislation is in section 38 TCGA 1992:

(1)Except as otherwise expressly provided, the sums allowable as a deduction from the consideration in the computation of the gain accruing to a person on the disposal of an asset shall be restricted to—

(a)the amount or value of the consideration, in money or money’s worth, given by him or on his behalf wholly and exclusively for the acquisition of the asset, together with the incidental costs to him of the acquisition or, if the asset was not acquired by him, any expenditure wholly and exclusively incurred by him in providing the asset,

(b)the amount of any expenditure wholly and exclusively incurred on the asset by him or on his behalf for the purpose of enhancing the value of the asset, being expenditure reflected in the state or nature of the asset at the time of the disposal, and any expenditure wholly and exclusively incurred by him in establishing, preserving or defending his title to, or to a right over, the asset,

(c)the incidental costs to him of making the disposal.

Hi, 
I get that. 
I'm confident that a house that had no direct access to a road / no driveway for a car, now having those things is a huge uplift in value of the property.  A drop curb was one small piece of that work.
Equally, a house with a tiny bathroom that has two rooms collapsed into one (I didn't go into the detail of the orginal airing cupboard opening out into the hallway via its own doors) to create a much larger bathroom adds value to the house.  
Changing the boiler is an interesting one.  It wasn't a like for like replacement.  It went from an outmoded system with a storage tank to a combi system.  It also extended the heating into several rooms that previously didn't have central heating - so before the house didn't have full central heating, now it does.
I didn't go into full detail (and there is more) as the question was about proof of the costs incurred.
Thanks,
Andy

Jeremy535897

Here is an extract from the business income manual, which looks at the difference between repairs and improvement in the context of a deduction from rental income, but the principles are the same:
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46925

In your situation, I would start by detailing as many of the items that meet the improvement test as you can, with whatever evidence you still have. That will give you a total figure that will probably fall short of reality, but will have some support (even a photo of the electric gates and the planning application for the kerb is better than nothing). Explain your workings in the computation you submit. The chances are that nobody will look at it, but if they do, you can have the argument from a basis of full disclosure by you of the information (or lack of it) you have used. You might be asked to pay more tax, with interest, but anything worse would be unlikely.