c.g. tax

tinbasher_2

We have a flat which we will shortly be selling (after doing it up to go on the market ) as its some way from where we live we will be staying in a hotel while we carry out the work, as we did when we brought it and got it ready to let out. two questions I know traveling expenses can be deducted from cgt but can we deduct the hotel bills and some of the diesel traveling to site  to carry out this work and can we deduct the hotel bills that we incurred when we carried out work when  we brought the flat seven year's ago. the flat has been let to a family member at a reduced rent. regards Bob

Grumpy_chap

tinbasher_2 said:

We have a flat which we will shortly be selling (after doing it up to go on the market ) as its some way from where we live we will be staying in a hotel while we carry out the work, as we did when we brought it and got it ready to let out. two questions I know traveling expenses can be deducted from cgt but can we deduct the hotel bills and some of the diesel traveling to site  to carry out this work and can we deduct the hotel bills that we incurred when we carried out work when  we brought the flat seven year's ago. the flat has been let to a family member at a reduced rent. regards Bob

It sounds like you have never lived at this flat (certainly not as your PPR) so the full gain will be subject to CGT.
You can deduct the costs of purchase and sale (legal costs, stamp duty, EA fees etc) so hopefully you have records of these amounts.

You cannot deduct the costs of maintenance or routine decoration or anything associated with that such as your hotel costs or mileage.  (Where do you get the information that "travelling expenses can be deducted from CGT"?)

You also probably cannot deduct the costs of preparing the property for first rental, though if there were specific capital improvements (rather than maintenance), then this may be allowable.  For example, installing central heating may be allowed whereas replacing an end-of-life boiler would not be.

Is it worth spending money, time and effort on doing it up before selling?  If you spend on making it nicer, you are doing to your taste - a new owner may wish to come in and re-do whatever you have done.  What you spend may quite possibly not increase the sale value by as much as you have spent, plus you will incur CGT on any increase in the sales value that you do achieve so further reducing the financial benefit.  It may be better to simply get the property on the market now.
You may find the following thread useful for a discussion about return on expenditure improving a property ahead of sale:
https://forums.moneysavingexpert.com/discussion/6589263/want-to-sell-property-in-a-year-or-2-is-it-worth-putting-a-new-kitchen-in/p1

theartfullodger

Suggest you buy a book on property tax.   There are more than 10 taxes a landlord may have to pay.  Cheaper (time and money)  than the alternative (ignorance).

Good luck..

TheSpectator

Why do people try and DIY tax stuff when they clearly have no idea of the rules.

Pay for professional advice, it will save you money in the long run.

Bookworm105

inbasher_2 said:

we brought the flat seven year's ago. the flat has been let to a family member at a reduced rent. regards Bob

so the property (where did you bring it from by the way, or do you mean bought? Past tense of to buy) with a view from the outset of letting it at a "reduced rent" . 
I trust you have declared your rental profit over the last 7 years (ie expenses) in accordance with the non commercial letting rules?

PIM2130 - Deductions: main types of expense: properties not let at a commercial rent - HMRC internal manual - GOV.UK

in respect of CGT
you need to be crystal certain as to the nature of the work done to the flat as it sounds like you have a mess of work related to preparing it for first letting (which would have been claimed against rental income tax at the date of the first let) and, subject to a lot more detail, possibly some capital improvements that can now be offset against the capital gain.  

PIM2030 - Deductions: repairs: is it capital? - HMRC internal manual - GOV.UK

Travel and accommodation costs are not part of capital expenses (but they might have been part of the rental profit calculation had you claimed them correctly at the time, including costs of preparing the property for sale once the letting has ended).

CG15160 - Expenditure: categories of allowable expenditure - HMRC internal manual - GOV.UK

CG15250 - Expenditure: incidental costs of acquisition and disposal - HMRC internal manual - GOV.UK

PIM2510 - Beginning and end of a property business: cessation - HMRC internal manual - GOV.UK

Grumpy_chap

Bookworm105 said:

in respect of CGT
you need to be crystal certain as to the nature of the work done to the flat as it sounds like you have a mess of work related to preparing it for first letting (which would have been claimed against rental income tax at the date of the first let) and, subject to a lot more detail, possibly some capital improvements that can now be offset against the capital gain.  

AIUI, the rules around costs to prepare for first letting are not that simple.
Some costs are allowed as capital - these have to be genuine investment, not replacement / maintenance costs.
Costs for maintenance activities to prepare for first letting, so simple decorating or carpets, are not allowable against letting income.

I know, with our rental property, our Accountant was quite specific that we should be sure to acquire a property that was capable of being let right away and, if any maintenance / decorating was required, to do so when the first natural void period rolled around.

saajan_12

There's two questions here: (a) were the works deductible for capital gains at all, and (b) if so, what costs are deductible. 

(a) were the works deductible for capital gains tax? 
Only if they were capital improvements, eg adding an extension, major upgrades, etc. Refurbishing ready for rental, fixing existing features after a rental or to make it more presentable for a sale are really related to the rental income tax, not capital gains. 

(b) if so, what costs are deductible?
Whenever you deduct costs, they have to be reasonable and directly for the repairs. If you paid a tradesperson, you wouldn't exactly be paying their hotel. Would the hotel be necessary or is there a cheaper way? 

Bookworm105

Grumpy_chap said:

Bookworm105 said:

in respect of CGT
you need to be crystal certain as to the nature of the work done to the flat as it sounds like you have a mess of work related to preparing it for first letting (which would have been claimed against rental income tax at the date of the first let) and, subject to a lot more detail, possibly some capital improvements that can now be offset against the capital gain.  

AIUI, the rules around costs to prepare for first letting are not that simple.

correct, you can look back one page from the cessation link already given and arrive at the "commencement" page.