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Where Taxpayers and Advisers Meet

Renovation costs

pondertax
Posts:4
Joined:Thu Mar 19, 2020 10:25 am
Renovation costs

Postby pondertax » Thu Nov 12, 2020 2:25 pm

Hi,

I'm hoping someone can help with this (a bit of background first):

2005 - residential property with sitting tenant inherited by a person who has no other rental properties. Property isn't in good repair.
2005-2019 - Same tenant stays, and won't let landlord do any work to the property. Property condition gets worse and worse.
2019 - tenant leaves to go into a care home
2019/20 - landlord spends multiple £10ks to renovate property with a view to selling
2020 - property marketed for sale for 6 months, but no sale achieved, so taken off the market
late 2020 - new tenant found, although landlord still wants to sell soonish.

Landlord has no other properties.

Most of the renovation costs incurred in 2019/20 are repairs and replacement, and therefore revenue expenditure, rather than capital. This would result in a large loss in 2019/20 which can't be relieved against other income, and must be carried forward against future rental profits - however, if the property is sold in the next couple of years, these losses will be lost. My question is, as the landlord was unable to do any work to the house when first inherited, could the renovation costs be deemed to be enhancement expenditure for CGT purposes, rather than being claimed as revenue costs?

Hoping that this makes sense and that someone can help! Thanks so much in advance...

Pondertax

pondertax
Posts:4
Joined:Thu Mar 19, 2020 10:25 am

Re: Renovation costs

Postby pondertax » Thu Nov 12, 2020 3:04 pm

Sorry, I've realised that I might not have been completely clear - my question is - is there any way that these renovation costs can be deemed to be allowable against CGT rather than against income tax?

I think that expenditure incurred on initial repairs to a property is ok for CGT, but considering these costs were incurred after the tenancy had finished for reasons outside the landlord's control, I'm not sure if HMRC would accept them as allowable against CGT.

Thanks again,
Pondertax

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Renovation costs

Postby bd6759 » Thu Nov 12, 2020 11:49 pm

There are no “deeming” provisions to apply . It is simply a question of fact whether the expenditure is revenue or capital.

If the whole has been repaired, and brings a benefit that exceeds the value of the repairs, then the expenditure is likely to be capital- the doctrine of the entirety.

But be wary of Conn v Robins Bros. An old building was substantially repaired after years of neglect. IR argued capital because of extent, company argued revenue because no new or extended asset was acquired. Court agreed with company.

You say some expenditure was capital. It will depend on whether the repairs were incidental to the capital scheme rather than vice versa

pondertax
Posts:4
Joined:Thu Mar 19, 2020 10:25 am

Re: Renovation costs

Postby pondertax » Mon Dec 07, 2020 9:35 pm

Hi bd6759,

Thanks for letting me know that it's more complicated than I thought - I have pointed the person in the direction of someone with a lot of experience in this area so that they get it right...

Thanks again,
Pondertax


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