Removed 2nd kitchen to sell property but can I still claim install costs against CGT

[rugbyroom]

Dear Forum,

When I purchased a property back in 2007, I had an upstairs bedroom converted into a small kitchen and bathroom to create a self contained ground floor flat and a second kitchen / bathroom for the other 3 bedrooms upstairs to use.

The council had no issue with the size of the kitchen, but when I tried to sell last year, the buyers had endless issues getting a mortgage as kitchen size was too small for a HMO.

I've since had the kitchen removed and spent further money on this conversion, but now not sure if I can claim against my CGT the original cost of the kitchen install or just the cost of having the kitchen removed and converted into a utility room.

Thankfully got a cash buyer, but don't want to add the costs of the original kitchen conversion if by removing it I'm not allowed to claim.

Any help most welcome.

[Sydaton]

That's an interesting accounting question. You should get professional advice but I would consider that even though the installation of a kitchen is a capital item and thus not an expense to offset against income, when it is removed, the loss (ie cost minus any sale of the old units) becomes an expense to claim against income.

I can also see different arguments so it will be interesting to hear what others think.

You could post the question on the forum below where you may get an answer from others who are qualified.

[jpkeates]

You're right, interesting.

I'd say that both jobs are capital expenses and allowable.
On the basis that they're definitely business expenses, and they're not operational.

However, I agree that the second unit of work, removing the kitchen could possibly be operational, on the basis that it's not increasing the value of the property in any meaningful way.

[Sydaton]

I was pondering if, on the removal of the kitchen, the whole cost of the kitchen - because it is no longer attached to the house - becomes an operational expense.

A possible parallel would be a washing machine bought for a property which did not previously have one. This would be a capital purchase - i.e. not offset-able against income. You might depreciate it yearly but when it no longer has a value and is disposed off, then you would treat the residual book value as an operational expense.

[jpkeates]

A possible parallel would be a washing machine bought for a property which did not previously have one. This would be a capital purchase - i.e. not offset-able against income. You might depreciate it yearly but when it no longer has a value and is disposed off, then you would treat the residual book value as an operational expense.

The rules for a washing machine are different though.
You can't claim the cost of the initial purchase of a furnishing at all, but replacement costs are allowable against income.

And in the property investment business for a private individual, there's no depreciation possible.

[Sydaton]

Yes, good points. I'm - probably wrongly - considering the matter from the perspective of it being a trade. Taking the washing machine example one stage further (and I acknowledge that this is further from the kitchen question posed), if the subsequent replacement washing machine is sold, what happens to the money received from a tax point of view?

[jpkeates]

Yes, good points. I'm - probably wrongly - considering the matter from the perspective of it being a trade. Taking the washing machine example one stage further (and I acknowledge that this is further from the kitchen question posed), if the subsequent replacement washing machine is sold, what happens to the money received from a tax point of view?

In that case, it would be similar to a trade - it would be income.
If the original (not possible to claim an allowance) machine was sold, that would also be income.

There wouldn't be any depreciation or written down value adjustment (no balance sheet for a start).

[Sydaton]

In that case, it would be similar to a trade - it would be income.
If the original (not possible to claim an allowance) machine was sold, that would also be income.

There wouldn't be any depreciation or written down value adjustment (no balance sheet for a start).

I see, thank you. It seems counter-intuitive that, in any situation, one can buy and sell something and be taxed on the income without relief on the expenditure.

[jpkeates]

It seems counter-intuitive that, in any situation, one can buy and sell something and be taxed on the income without relief on the expenditure.

It is counter intuitive, I agree.
It was a special rule about not claiming for the original purchase of furniture introduced when the previous regime for furniture (10% of rent value per annum) was removed.

It means that, once again, company accounting and property investment accounting are not in synch, and the investment rules make no sense.
Since leaving the world of commerce and becoming a landlord, a lot of time has been spent unlearning the fairly sensible and well worn corporate rules used (usually) by trained professionals for a different and inconsistent set of rules used (usually) by people who have no training or experience.

[Gordon999]

Dear Forum,

When I purchased a property back in 2007, I had an upstairs bedroom converted into a small kitchen and bathroom to create a self contained ground floor flat and a second kitchen / bathroom for the other 3 bedrooms upstairs to use.

The council had no issue with the size of the kitchen, but when I tried to sell last year, the buyers had endless issues getting a mortgage as kitchen size was too small for a HMO.

I've since had the kitchen removed and spent further money on this conversion, but now not sure if I can claim against my CGT the original cost of the kitchen install or just the cost of having the kitchen removed and converted into a utility room.

Thankfully got a cash buyer, but don't want to add the costs of the original kitchen conversion if by removing it I'm not allowed to claim.

Any help most welcome.

You can claim the cost of "removing kitchen and converting to utility room" before finding a buyer as an improvement expense .

Just claim this part and deduct this expense in your calculation of the taxable capital gain.

[Sydaton]

do you have an opinion, Gordon999, as to whether,they can claim the original cost of the kitchen install against their CGT as well?

[Gordon999]

do you have an opinion, Gordon999, as to whether,they can claim the original cost of the kitchen install against their CGT as well?

I did not recommend claiming the original 2007 cost because it may raise doubts ..........

For the 2022 expense, the property was improved to enable to buyer to qualify for a mortgage.

[SouthernDave]

Reading stuff like this makes me glad we have a ltd company structure.