Double check - renovations deductible from CGT liability?

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    Double check - renovations deductible from CGT liability?

    Hello,

    Being a forum lurker over the years I now need a bit of help, if anyone would be willing?

    I have been letting a property since 2009.

    It was purchased back then for £115,000 and it is now valued at £300,000. I now wish to sell and clearly I have CGT to pay.

    After purchasing (in 2010) I spent circa. £25,000 renovating the property. Then in 2018 I stopped letting and spent a further £20,000 renovating before an intended sale, but I then decided to let it out again until now. These were renovations by the way i.e. knocking out walls, new shower room where one didn't exist before, destroyed carpets for wooden floors. .

    The property was not let out for 12 months during the second 2018 renovations before being let out once again (I don't think this matters but it might do so I mention it just in case?).

    My question is: am I correct in thinking that I can deduct the total £45,000 before calculating my CGT liability?

    Thank you





    #2
    Repairs and replacing existing items are revenue expenses charged against rental income.

    Improvements and new items ( not existing before ) are capital expenses charged against capital gains..

    If you cannot claim all £45K , then apportion the costs , say "one third" to repairs and replacements and "two thirds" to improvements.

    Comment


      #3
      Did you already claim some of this against your rental income.

      The new walls are capital expenses. ,

      New carpets definitely are not. Neither is painting, other decorating and so on.

      Comment


        #4
        There are circumstances where a room is painted acceoptably but drably.redecoration in an unecessary repair but does add value and therefore could be construed as a capital expense.Similarly laying replacement paving slkabs in lsandstone on top of Wickes basic is an upgrade.It is a grey area defining decoration.

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          #5
          That's not the criterion I'm afraid. Replacing a 10 year old boiler by a new boiler adds value -- but is NOT a capital expense.

          Replacing the boiler 5 times at £3K during a 50 year period adds value each time, but it is not £15K of capital expense.

          Painting a room certainly is not a capital expense. It is not a "grey area" - it is totally black.

          Laying sandstone slabs where there were not slabs before is a capital expense.

          Comment


            #6
            OP has a capital gain of £300K- £115K ( original cost ) - £30K ( say for improvements ) - £6K selling costs = £149K .

            Taxable Capital Gain= £149K - personal allowance £12.5K = £137K. which is taxed currently at 18% or 28%.

            .

            Comment


              #7
              AndrewDod,

              Do you work for HMRC-things are never as black and white as you suggest-what about decorating
              1.an extension
              2.a replastered wall
              3.a stud wall dividing a large room?

              Comment


                #8
                This is getting silly.
                1. Yes this is a capital; expense. The paint did not exist in any form before
                2. No, replastering a wall is not a capital expense
                3. If a stud wall is newly fitted and there was not a stud wall before then painting that new wall is a capital expense.

                Re-carpeting is not a capital expense.

                Comment


                  #9
                  Does a repair in a property signify an improvement?When I carry out a repair my wife says "thats a real improvement!"

                  Comment


                    #10
                    HMRC are quite clear that a replacement item is likely to have an element of improvement, on the basis that new and modern things are usually better than the old and used thing being replaced.
                    That doesn't make them a capital item.

                    When you read the HMRC manuals relating to property and capital items, the examples are in the order of a new bathroom or an extension, not a new bath or boiler.
                    Redecorating a property might make a huge improvement, but it's not a capital item.

                    While tax isn't all black and white it's not very grey either.
                    It's mostly pretty black and white.
                    And it's not as if these are unusual situations, tax returns on this basis are routine.
                    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


                      #11
                      Originally posted by gnvqsos View Post
                      Does a repair in a property signify an improvement?When I carry out a repair my wife says "thats a real improvement!"
                      This is going around in an infinite loop (in both your threads). The wife's exclamation was already raised.

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