House sale CGT - Another allowable expenses query

DanVittori

Hi All
We have recently sold a rental property to our own newly formed company (to utilise stamp duty holiday) which means we need to pay CGT on the sale. We lived in the property for 9 years and then rented it out for 7+ years. We installed a new consumer unit (cost £450, there was none before) and replaced facia and gutterings (£1,000) just before the tenancy started but didn't claim these as expenses in the rental income calculations. The tenant moved out in February this year after which we have invested heavily in the property in a new kitchen, new Combi boiler (replacing 25+ year old conventional boiler and tank system), new floorings, new vanity unit etc. to modernise the house before the sale was completed. So my queries are
1. Can the cost of consumer unit and facia be claimed as allowable expenses
2. Can the recent cost of new items (excluding painting and redecorating)  be claimed as allowable expenses considering these were done after the tenant moved out, solely for the purpose of making the house sellable and the sale price of the house reflects the improvements made (otherwise sale price would have been lower). 

We have already taken into account the Private residence relief, SDLT, solicitor fee and personal allowance but there is still a reasonable amount to be paid hence the query. If there are any other legitimate allowable deductions for consideration then also please advise.

Thanks in advance.
Dan

tacpot12

No, the consumer unit, kitchen, combi boiler and fascia are all repairs, not improvements. Improvements are things like a new garage, a new extension that has added bedrooms or a bigger garden obtained by purchasing land from your neighbours; things that make the property intrinsically worth more. Similarly, decorating is not deductible as you would have claimed this to make the property lettable had you not been selling it. 

The items that are deductible are:

• Survey Fees and Legal Fees from the time of purchase (but not Bank Transfer Fees, Land Registry Fees generally and Searches)
• Stamp Duty
• Legal Fees on sale (including any fees that have been charged for legal work to establish your title)
  
• Land Registry Fees if the cost was incurred to establish your title to the property)
• Certain indemnity insurances that you may have had to purchase to allow the sale to go ahead (you would need to research whether your situation is covered by relevant case law)

 

Jeremy535897

See https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15180

Keep_pedalling

All those items are expenses that can be claimed against rental, but you paid for them from your own pocket before transferring the property to the company that will now ( presumably) be renting out the property again. Does this prevent the company claiming those expenses?

DanVittori

Thanks all for your prompt responses. Below is the extract from the HMRC CGT manual link above

In order to qualify as enhancement expenditure, the expenditure that can be allowed is restricted to -

the amount of any expenditure wholly and exclusively incurred on the asset by him or her or on his or her behalf

for the purpose of enhancing the value of the asset,

Let's say, if £10k were invested a month before the sale and neither owner nor tenant used these enhancements, couldn't it be argued that these expenses were done to enhance the value of the property. In other words, the sale price/value of the property would have been £10k less if these expenses were not done. 

All these expenses were done from personal accounts and not company account as the property was still owned by us at the time of investment. The company will be renting out the property. Not sure if we can claim these as company expenses instead which could give similar tax saving.

Thanks

uknick

DanVittori said:

Thanks all for your prompt responses. Below is the extract from the HMRC CGT manual link above

In order to qualify as enhancement expenditure, the expenditure that can be allowed is restricted to -

the amount of any expenditure wholly and exclusively incurred on the asset by him or her or on his or her behalf

for the purpose of enhancing the value of the asset,

Let's say, if £10k were invested a month before the sale and neither owner nor tenant used these enhancements, couldn't it be argued that these expenses were done to enhance the value of the property. In other words, the sale price/value of the property would have been £10k less if these expenses were not done. 

All these expenses were done from personal accounts and not company account as the property was still owned by us at the time of investment. The company will be renting out the property. Not sure if we can claim these as company expenses instead which could give similar tax saving.

Thanks

The question you need to ask is, would I pay extra to buy a house with a new consumer unit, recent decoration and some repairs to the guttering etc.?  I wouldn't.  Whilst it might make me more likely to buy your house because I don't need to do any work on the house immediately, I wouldn't pay more for your house than a similar house which hasn't had this work done.  As others will have different opinions the HMRC rules need to be written to cover the majority of opinions as to what an enhancement is and people will pay extra for, e.g. extension, adding more bedrooms.

If you think you have a case and disagree with the opinions on here, why not write to HMRC and ask them.  Although don't hold your breath waiting for an answer 

dctrgre

Perhaps being a little facetious here;

1. would the company (controlled by you) have bought the house if the works had not been carried out?
2. did the company agree to pay a higher price to you for the house due to the works that had been carried out? 

(For the avoidance of doubt, the price paid does not affect the CGT comp in this instance.)

Jeremy535897

dctrgre said:

Perhaps being a little facetious here;

1. would the company (controlled by you) have bought the house if the works had not been carried out?
2. did the company agree to pay a higher price to you for the house due to the works that had been carried out? 

(For the avoidance of doubt, the price paid does not affect the CGT comp in this instance.)

I suppose the real point, when a sale to a connected party takes place and so market value has to be established, is whether the enhancements increased the value. That is a question for the valuer. But the practical outcome is:

• if the enhancements didn't affect the valuer's value, their cost isn't deductible but they didn't increase the value
• if the enhancements did affect the valuer's value, they will be deductible, but the value will have gone up by at least the same amount, so the gain will be no less (but the company has a higher base cost).

unholyangel

Are we all avoiding the elephant in the room?