CGT and tax returns

[Lots on]

Hello all, just need some advice re CGT. I have a house which I refurbished entirely, mostly in this financial year and I could start my tax returns on the 6th of April 2021. I spent nearly £30000. New kitchen and bathroom, re doing the garden, new flooring throughout ,total electrical re wire, re decoration etc. There is now a new tenant in place, I may sell the property, but it won’t be for another 5 years. I need some guidance on what I should offset against my 2020/2021 HMRC bill, and what I should eventually offset against CGT, to minimise overall tax. I have already put the electrical work down as an expense on my 2019/2020 bill as that work fell during that time period. Have not put anything else down. Can anyone offer any advice, or point me towards a good source of advice? Thanks in advance.

[jpkeates]

Was the property your first and was this the first ever tenancy, or was the property already part of your business?

Essentially the capital items are things that materially increased the value of the property, like adding a new room or replacing something that had caused the original purchase price to be lower than it would otherwise have been.
There's an element of improvement allowed because a new more modern anything is usually better than what was there.

So, from your description, most of the things are likely to be operational costs rather than capital items.
Unless the "new" bathroom and kitchen are actually completely new to the property.

[Lots on]

Thanks jpkeates. I have two rentals and this is not the first tenant, there were tenants in situ previously and their moving out was the opportunity ( and need) for a total refurb. Obviously there was a kitchen nanny bathroom before, but the new ones are improvements. I owned both the properties simultaneously when I inherited the, from my late father. Sounds like I should put most items down as allowable expenses for this tax year then?

[jpkeates]

Lots on Yes, sounds like it.
It's a bit of an art, rather than a science.

You can also apportion the costs between the two categories.
If you, for example, think that the result is that the property is worth about £10k more after the work has been done, you can decide that a third of the costs were capital and the rest was operational.

Keep your records for when you sell the property if you do keep some of the costs as capital.

[Lots on]

Thank you JP. There’s obviously a few things to bear in mind, the temptation of course is to put it all down as expenses and get a nice big fat reduction in the self assessed tax bill for this financial year. NRLA do a half day course on CGT which I should probably do. I think the property is probably worth at least £10000 more than it was pre renovation.

[Gordon999]

I believe you can include cost for buildings insurance , council tax for vacant period , rewiring , flooring , redecoration + gardening as operating expense against the rental income in your tax return for 2020-2021. The cost for new kitchen and new bathroom suite may be capital cost and saved for claim after future sale

[Lots on]

Thanks everyone. I’m going to ring HMRC and ask. Last time I did that I was eventually put through to someone who was quite knowledgeable and competent. If that doesn’t work, the NRLA does a tax for landlords course in June, I might do that.

[jpkeates]

I'd personally suggest never asking HMRC for advice on tax.
They're not qualified to give it and are working for an organisation that has targets for collecting tax.

[Lots on]

Oh dear. Maybe the NRLA course then. Please don’t tell me that’s a bad idea!

[jpkeates]

Oh dear. Maybe the NRLA course then. Please don’t tell me that’s a bad idea!

No idea, I've never interacted with the NRLA - but no reason to think that would be a bad idea.

I'd involve an accountant personally.

[Lots on]

Ok, I’ve have never used an account in my life. How do you find a competent one and how much would it cost ( no point doing it if it costs as much as any savings?).

[Lots on]

Sorry about all the typos.

[jpkeates]

I found a good accountant by looking for a local firm with offices (above a high street is a usual location) and sending an online enquiry from their web site.
The lack of response ruled most of them out straight away.
Met with two of them, like one more than the other and have used them since.

It's not cheap (the actual cost will vary depending on where you are) and any savings are hard to quantify. I've saved a couple of small amounts, which add up year on year, but are nowhere near the cost of the returns (one for me, one for my wife and one for a trust).

But each year (except last year) I spend 20 minutes reviewing my finances with them, and this gives me confidence I'm not missing anything. And a couple of times we've had some serious reviews about how the property is owned and whether it's worthwhile restructuring.

So it's worth it for me, but might not be for anyone else.

[jpkeates]

I should add that I have had quite a lot of experience of business finance and tax from my work, so there wasn't expecting there to be too much that I'd missed in my planning.
The less you know about tax and accounting the more likely you are to have missed some benefits I'd have thought.

[Lots on]

Thank you JP. I am not involved in finance in my job ( I work for the nhs as a clinician) and what I know I have picked up as I go along, so it is definitely something to consider. A one off consultation might be the way forward, to help with tax returns and minimise CGT.