CGT Question

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    CGT Question

    Hi, I'm hoping that someone will be able to help me out with a CGT question.

    My situation is that i bought my first flat in 2003. It wasn't bought as a BTL it was bought as my primary residence. I bought the flat through probate and paid £175,000. The market price at the time was circa £240,000 but the flat was an absolute wreck and totally uninhabitable and the below market price the sellers accepted represented it's condition as well as their desire for a quick sale.

    I spent £25,000 on making the place habitable before i could move in. This included new kitchen and bathroom, new flooring, total re-wire as the wiring was deemed to be dangerous, re-plaster (old plaster was blown with patches of damp). I didn't go high end spec as i didn't have the budget and did the re-decorating myself but it represented a significant improvement to the condition of the property compared to how i bought it and after the work was completed i had the flat re-valued at £235,000.

    in 2007 my circumstances changed and I had to move. I was fortunate enough to be in a position to be able to buy a 2nd flat in the location i was moving to and rented out my old flat.

    Fast forward 12 years and i have now sold the flat i was renting out and I need to calculate my CGT gain. The calculation is straight forward enough other than I am unclear on what improvement costs i can deduct from the capital gain. All of the advice i can find online is specific to flats that have been bought and renovated as a BTL. In my case I bought and renovated the flat to live in and in doing so increased the value of the property by £60k so clearly a capital gain resulting from all of the work i had done.

    My question is can i deduct the full £25k from my capital gain? In addition to the £25k i also replaced the windows at a cost of £3k which i have not included because from what i have read windows are always classed as like for like? (would be nice if i could also include that as a deductible cost as well)

    Any advice greatly appreciated.

    #2
    Tax is an art, rather than a science.

    If the property was undervalued because it was in poor condition, I'd have thought £25k expenditure was all capital.

    Windows aren't always like for like, and if the existing ones were in a less than acceptable state, you could claim for them as well. Or ascribe 50% to capital and 50% not.

    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      A simpler solution would be to simply start the calculation from the time the property became a BTL. i.e how much was the property valued at when you started renting it out. The expenses incurred were done so as a main residence not when it was a BTL

      Comment


        #4
        If you have kept the bills and receipts to prove payment, then claim everything as capital including £175K ( to buy) plus £25K ( improvement ) and £3K ( windows change ).

        Comment


          #5
          Kape65 No you cannot start the calculation when it became BTL - that is not how it works.

          Yes you can include the full 25k - it matters not that it was during your period of residence. You count the full gain (from when you bought it). The residence aspect comes into the calculation of reliefs not the calculation of the gain. The exact opposite to that suggested above.

          Comment


            #6
            I agree with the above.
            "Simpler" ignores all the effort of getting HMRC to change its policy on how CGT has to be calculated or paying the fines for submitting an incorrect return.
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment


              #7
              I was assuming the property had been remortgaged as a BTL when it was let but the OP does not say this.

              Comment


                #8
                Originally posted by Kape65 View Post
                I was assuming the property had been remortgaged as a BTL when it was let but the OP does not say this.
                That does not make any difference one way or the other.

                Comment


                  #9
                  Originally posted by AndrewDod View Post

                  That does not make any difference one way or the other.
                  Does it not? Surely if it switched from residential mortgage to BTL mortgage the calculation would begin there. The only taxable gain would be whilst it is a BTL.

                  Comment


                    #10
                    Originally posted by Kape65 View Post

                    Does it not? Surely if it switched from residential mortgage to BTL mortgage the calculation would begin there. The only taxable gain would be whilst it is a BTL.
                    No. That is NOT how it works. The gain is calculated based on the difference between purchase price and sale price. Then there are reliefs.

                    By way of extreme example:

                    a) Buy in 1990 at 100K
                    b) Start letting in 1991 by which time market value is £200K
                    c) Sell in 2000 at 200K

                    Gain during period it is let is zero, but there will be a massive CGT bill.

                    As I said the only relevance of letting (or self-occupancy) is in terms of reliefs, not the periods of gain.

                    Comment


                      #11
                      RXP007,

                      The capital gains is reported in box 3 onwards on Tax Return SA108 which can be downloaded with the summary notes from the gov website given below. Box 54 is a blank space to enter your calculation for taxable gain.

                      https://www.gov.uk/government/public...-summary-sa108

                      Comment


                        #12
                        Thank you to everyone that has taken the time to respond to my question, it has made things a lot clearer. I have done some additional research and found some guidance on the HMRC website that states that the cost of the works is classed as Capital expenditure if:
                        • The asset was not in a fit state for use until the repairs had been carried out
                        • There is evidence in, for example, the contract for the sale of the asset or in negotiations leading up to the contract or in the surrounding circumstances that the purchase price was substantially less because of the dilapidated state of the asset.
                        Both of these statements are true in my circumstances. So this coupled with your responses tells me how I need to proceed with my calculations.

                        Thanks again

                        Comment

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