Capital Gains Tax AND Capital expenditure

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    Capital Gains Tax AND Capital expenditure

    I have searched this site and haven’t quite found an identical situation.

    I do expect to pay tax but need clarity on what my liabilities are, and what expense is deductible.
    Basically, my short term business model isn’t the most profitable but I have shown loyalty to long standing tenants and am intending to continue as such. Generally rental income has covered costs and my wage has been the increase in property value.
    To raise funds I have remortgaged a tenanted unit – she now has a five year secure tenure, otherwise I will be clobbered for early redemption.
    The funds are being reinvested in an empty unit, which is rent-able, but I am raising the standard to prepare for sale.
    I am reducing my portfolio, and am hands on with work being carried out.
    New kitchen, bathroom, heating, décor etc…

    Costs incurred in raising finance have had to come from my savings.
    This year, as last, figures from my accountant indicate that I have drawn less than my tax code.

    By borrowing, and reinvesting, I am increasing the worth of my asset, and hence taxable profit, accrued over 16 years.
    It has always been my intention to deduct ALL related costs – Brokers and Solicitors fees, as well as Interest to repay loans, and capital expenditure, after all they are just a means to maximise value and profit.
    In theory, offload one unit per year (or two) to make best use of CGT allowance.

    Can I draw a salary and lose money this year?
    Can I carry loses forward from this (and last tax year) to offset against inevitable profit.
    Is there any recognition for years asset has been held? (I seem to remember that there used to be?)
    This might determine whether or not I raise against another flat, in this financial year or next, or just bide my time until a sale is achieved.
    Any advice would be gratefully appreciated.

    Stay safe one and all, and thank you.


    #2
    You would probably benefit from running through this with an accountant who knows their stuff.

    Unless you're running this as a limited company, I think that you're mixing up two completely different sets of tax.
    Capital gains tax can be offset by the costs of increasing the capital value of the property. But some of the other costs aren't capital, they're operational and have to be set against income.

    Interest on loans, broker's fees and the replacement element of the work you're doing.
    So a new kitchen is likely to be mostly replacement (operational) with an element of capital (if it materially affects the value of the property beyond the benefit of simply being newer and shinier).

    You can't charge for your own work as either capital or operational expense and you can't draw a salary (unless the business is a company).

    You can carry operational losses forwards, but they're not offsetable against an increase in property value on disposal.

    There's no adjustment possible for the number of years a property is held.
    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).

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