CGT and enhancement expenditure

ece9600

Hello

We recently bought a second property which requires very substantial works- our plan is to do these works over the next couple of years then sell our current house and live in the new one.

I'm keeping copies of all invoices as I understand that we might have a CGT liability if we ever sell the new house, relating to the period during which it was not our sole or main residence.

I'm trying to understand what I can count as enhancement expenditure. I think a lot of the works will count, as we are reconfiguring the house rather than just carrying out repairs, as well as building outbuildings. But some things aren't clear to me- eg if we replace rotten windows, is this an improvement or a repair? Can I count money spent on the garden- eg structural work to create a terrace, digging a pond, planting trees? To me this seems like expenditure which enhances the value of the asset and will be reflected in the state of the asset at the time of disposal. Any guidance would be much appreciated as at the moment I'm keeping all my invoices on the off chance. I've found a lot of guidance on the principles behind the deduction but presumably there's specific precedent saying that X can be counted and Y can't, out there somewhere?

Thank you!

Jeremy535897

Firstly, it may not matter:

"Period of absence

Some periods when you were not using the house as your only or main residence will still qualify for relief. These should be treated as periods of actual occupation when you’re calculating the fraction of any gain that qualifies for relief.

If, for up to a period of 24 months you do not occupy your new home when you acquire it because you’re unable to sell your old home, or you need to carry out refurbishment redecoration or alterations, you can treat up to the first 24 months as if the house had been your only or main residence in that period. The same treatment applies when you buy land to build a house on.

Example 6

You bought a house in January 1998, but it needed major refurbishment and you could not move in until January 1999. If it was subsequently your only or main residence until you sold it in June 2020, you are entitled to full relief."

From https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2021

Look for the 2022 version from tomorrow.

Secondly, it is a matter of context. Replacing a light switch that has broken is a repair. Replacing a light switch as part of rewiring the whole building in a total renovation of an old barn is an improvement. Keep detailed records. You may take some comfort from https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15200 (if the expenditure would qualify on a property to be let, it would also qualify on a property to be occupied as a main residence):

"Expenditure in period before a newly-acquired property is let

If a property is acquired in a dilapidated condition, expenditure incurred in repairing it and putting it into a fit state for letting (including expenditure on decorations) may be inadmissible as a deduction for Profits of a Property Business, see PIM2020. For Capital Gains purposes, however, such expenditure as cannot be deducted in computing income may be regarded as allowable expenditure under TCGA92/S38 (1)(b)."

You clearly have looked at the issue, so if you want more detail on the HMRC view, see https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15150p

ece9600

Thank you, Jeremy- that's very helpful.