Capital gains tax on sold property

Loll10

The sale of my father’s retirement flat has just completed after 2 years. It was valued on the date of death as £90,000 and sold at £110,000.

The kitchen and bathroom were both in a poor condition so needed renovating before any potential buyers would even view it. I researched the renovation rules beforehand, so they were both upgraded sensibly and considerably different than before. I also took photos before and after.

I’ve used the government online calculator which started with a £20,000 gain that resulted in £0 tax to pay and the annual exempt amount left for 2024 to 2025 is £48.

I’m the executor so am using one £3,000 tax free allowance.

I’ve deducted the solicitor costs, EPC certificate and seller pack provided by the management company.

The allowable expenses used were the renovation costs and I excluded the new carpets in the rest of the flat.

Do I need to report anything to HMRC?

I’ve sorted the IHT and Probate easily enough but I’m not quite so confident about this part.

Thank you.

Jeremy535897

If you need to file a return as an executor for any reason, you will need to include the capital gains tax computation, even though you have calculated that there is no capital gain.
Be aware that if HMRC dispute your calculation, perhaps because they disagree that the new kitchen is an improvement, and you accept their calculation, there will be tax and interest, and possibly penalties. You would have had to complete the online return within 60 days of completion if there was tax due.

Loll10

@Jeremy535897 Thank you for the helpful information. The property was sold as part of the whole estate so I'm not aware that I need to file any returns. The kitchen was a 32 year old sink unit and wall cupboard. This has been upgraded and extended to include fitted appliances and units. The bathroom was upgraded from an old pink toilet, sink and bath to fitted units and shower. I have receipts for the renovations together with before and after photos.

I judged the renovations against the following criteria from HMRC:

The improvement must be made to the asset - Yes

The improvement must increase the asset’s value - Yes by £20K

Is the increase in value still valid when you dispose of the asset? Yes

The flat was valued on death at £90,000 but was informed it wouldn't sell in that condition. It's a niche market for people aged 60 or over and buyers are looking for modern kitchens and bathrooms with no work to do on it. That's the sole reason for the increase in price and finally getting a buyer.

The government community forum for capital gains official response has been:

A new state of the art, bespoke kitchen can be considered capital, when it replaces a standard kitchen and is an improvement over the old kitchen, for example an old all in one cooker is replaced with designer hobs and fitted ovens.
It is largely a question of fact and degree in each case, whether expenditure on a property leads to an improvement.

They also say that if the online calculator shows there is no taxable gain then you don't have to report it.

I'm happy to stand by the improvement figures within the calculation.

Leasehold retirement flats are just money pits when selling. The monthly service charge continues till sale completion, as well as the sinking fund, with full council tax 6 months after probate is granted. £7K extra spent on services not used. The first sale was aborted just before exchange then we had to start all over again with a new buyer. I've learned a lot about leasehold from this fiasco, never again lol.

Jeremy535897

If there is no tax, you don't need to file the online return, but if you have to file a self assessment return as executor, you will need to include the disposal in the capital gains tax section.
You can't rely on the HMRC community forum, but you have your defence all lined up, should HMRC look into it, which is probably unlikely.