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Where Taxpayers and Advisers Meet

Capital Gains Tax on Buy to Let Property

msjones
Posts:5
Joined:Sat Jan 16, 2010 12:21 pm
Capital Gains Tax on Buy to Let Property

Postby msjones » Sat Jan 16, 2010 12:34 pm

Please help!

I sold my buy to let property in the tax year 08-09, and made a capital gain. In the tax year 07-08 it was not rented out and had to undergo a substantial amount of building work for dry rot (new joists, floors, ceilings etc). This resulted in a loss that tax year. Now I have sold the property I have made a gain and am struggling tio understand what is/isnt allowable.

Can anyone clarify:

1. Can i use the loss made in 07/08 towards reducing the gain I made in 08-09 when i sold the property?

2. I incurred costs in 08-09 before the property was sold, for works to make the property good for sale (new kitchen, decoration etc). Can I use these expenses too towards reducing the gain?

3. Can I claim for the costs of renovating the house when I originally bought it?

All advice much appreciated as i keep going round in circles reading the tax form! :?

Peter D
Posts:10668
Joined:Wed Aug 06, 2008 3:37 pm

Re: Capital Gains Tax on Buy to Let Property

Postby Peter D » Sat Jan 16, 2010 1:28 pm

These sound like repairs not capital enhancment so they cost were/are deductible from the rental income. Was a damp course fitted or anthting that added to the property. Regards Peter

msjones
Posts:5
Joined:Sat Jan 16, 2010 12:21 pm

Re: Capital Gains Tax on Buy to Let Property

Postby msjones » Sat Jan 16, 2010 3:30 pm

Hi Peter,

No, but there has been no rental income to deduct these from either in 07-08 and 08-09.

Best wishes

Peter D
Posts:10668
Joined:Wed Aug 06, 2008 3:37 pm

Re: Capital Gains Tax on Buy to Let Property

Postby Peter D » Sat Jan 16, 2010 5:24 pm

Your expenditure is not capital in nature and has of course increase the vlaue and sellability of the property so you have a greater gain of which the HMRC will want there 18% after allowances, costs of acquisition and sales and legal fees etc. If you had adamp course fitted then that would have been a capital item. The good news is the other 82% gain is yours. Regards Peter

mullet
Posts:3242
Joined:Fri Nov 06, 2009 9:26 am

Re: Capital Gains Tax on Buy to Let Property

Postby mullet » Sat Jan 16, 2010 5:40 pm

Can I claim for the costs of renovating the house when I originally bought it?
Possibly, if the property was in a dilapidated state and had to be tidied up etc so that it could be let, and if the poor condition was reflected in the purchase price. This sort of thing can be difficult to untangle.

msjones
Posts:5
Joined:Sat Jan 16, 2010 12:21 pm

Re: Capital Gains Tax on Buy to Let Property

Postby msjones » Sat Jan 16, 2010 6:04 pm

hi msp,

it was mostly in a poor state, it had belonged to an elderley couple and had collapased drains, so had to have floors dug up and new ones laid, no kitchen units, paper hanging due to damp off walls etc. Although it did have double glazing (i imagine they had a grant for that).

Best wishes
M

msjones
Posts:5
Joined:Sat Jan 16, 2010 12:21 pm

Re: Capital Gains Tax on Buy to Let Property

Postby msjones » Sat Jan 16, 2010 6:07 pm

Your expenditure is not capital in nature and has of course increase the vlaue and sellability of the property so you have a greater gain of which the HMRC will want there 18% after allowances, costs of acquisition and sales and legal fees etc. If you had adamp course fitted then that would have been a capital item. The good news is the other 82% gain is yours. Regards Peter
Hi Peter,

i did put in new damproof course when i bought it in 2001, along with new drains, carpets, flooring, kitchen etc. It underwent a full renovation then. Is the original cost of renovation classed as an allowable expense now or should it have been offset against the income that tax year?

Best wishes
M

Peter D
Posts:10668
Joined:Wed Aug 06, 2008 3:37 pm

Re: Capital Gains Tax on Buy to Let Property

Postby Peter D » Sat Jan 16, 2010 6:25 pm

The damp course and associated costs are capital enhancement as may be the Kitchen as there was not a fitted kitchen there before as it sounds like a substantial upgrade. I would claim that as an enhancement so it increases thew base cost by the amount spent. Decoration, carpets, flooring are revenue in nature so can not be claimed. Basically :
These can be reclaimed under ICTA88/S401 or ITTOIA05/S57.
Relief is only due where the expenditure:

(1) is incurred within a period of seven years before the date the rental business is started, and
(2) is not otherwise allowable as a deduction for tax purposes, and
(3) would have been allowed as a deduction if it had been incurred after the rental business started.
This means that, to be allowable, the expenditure must be incurred wholly and exclusively for the purposes of the rental business and must not be capital expenditure etc.
http://www.hmrc.gov.uk/manuals/pimmanual/
http://www.hmrc.gov.uk/manuals/pimmanual/PIM2505.htm
Regards Peter

msjones
Posts:5
Joined:Sat Jan 16, 2010 12:21 pm

Re: Capital Gains Tax on Buy to Let Property

Postby msjones » Mon Jan 18, 2010 7:11 pm

Thanks Peter, much appreciated.

Incredulum
Posts:2765
Joined:Thu Dec 03, 2009 5:35 pm

Re: Capital Gains Tax on Buy to Let Property

Postby Incredulum » Tue Jan 19, 2010 11:47 am

Much of this is a grey area, clearly if you have previously claimed costs against your rental income you are not permitted to claim them against capital gain.

I should say that pretty much ALL of your costs following acquisition were capital in nature (save for carpets, linoleum, furnishings). Wooden/laminate flooring, decorating, kitchens etc. will all have given rise to an improvement in the asset.

The 2008 costs are not 100% clear. How old is the house? Were you replacing dry rot that had been there since before 2001? (It seems quite likely; widespread dry rot doesn't generally spread that far that quickly.)

I'm not 100% convinced that the 2008 costs are repairs; tell us more. Was there any upgrading. What are the new floors made of compared to the old? The new ceilings?


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