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CGT or not?
Hello I bought a property some years ago but was unable to refurbish it owing to ageing parent commitments for 15 years etc. Over the years, the property has become derelict and now that I am retired and have taken a pension lump sum, I can renovate it. I paid £18k on the property but will now spend about £170k on the works. What is the CGT tax position please? I don't intend to sell but want to know if I have a tax liability lurking. Many thanks.
Re: CGT or not?
On a future sale, you can deduct the cost of acquisition and capital improvements from your capital gain.
Whether works amount to capital improvements, rather than regular repairs, can be fact sensitive but this may be useful:
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2030
Caution: If you have bought it, renovate and then sell it (with no intention to live in it or hold it as a long term investment) there is a risk that your profits are subject to income tax on the basis you are trading.
Whether works amount to capital improvements, rather than regular repairs, can be fact sensitive but this may be useful:
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2030
Caution: If you have bought it, renovate and then sell it (with no intention to live in it or hold it as a long term investment) there is a risk that your profits are subject to income tax on the basis you are trading.
Re: CGT or not?
Thanks for the reply and sorry for delay in coming back. Have been away.
If we spend £170k, we will have a loss of £152k. The property is fairly derelict: collapsed roof at the rear, shed roof collapsed also. The intention is to keep the property for family use. It was bought after a relative died so the family connection is the main thing. No intention to do anything commercial with it I guess my question is if we are sitting on a large loss between the purchase and renovation price, does this insulate us from CGT? Once renovated, the full market value would not be likely to exceed £190k. The intention longer term is to leave this to our 2 boys but we would like to understand any tax implications other than IHT which is a whole other matter!
Many thanks.
If we spend £170k, we will have a loss of £152k. The property is fairly derelict: collapsed roof at the rear, shed roof collapsed also. The intention is to keep the property for family use. It was bought after a relative died so the family connection is the main thing. No intention to do anything commercial with it I guess my question is if we are sitting on a large loss between the purchase and renovation price, does this insulate us from CGT? Once renovated, the full market value would not be likely to exceed £190k. The intention longer term is to leave this to our 2 boys but we would like to understand any tax implications other than IHT which is a whole other matter!
Many thanks.
Re: CGT or not?
You won't make a gain or a loss unless or until you dispose of the property by sale or gift. CGT isn't an issue until then. So you haven't made a loss simply by spending money.
As that link I mentioned shows, repairing a derelict property is usually a capital expense so you could deduct the cost of returning it to a good state from any CGT calculation. I think that's the answer you're looking for.
The position might be more difficult here if you inherited it in a habitable state but it became derelict over your 15 years of ownership. It might be worth getting some proper advice if you're worried about that.
As that link I mentioned shows, repairing a derelict property is usually a capital expense so you could deduct the cost of returning it to a good state from any CGT calculation. I think that's the answer you're looking for.
The position might be more difficult here if you inherited it in a habitable state but it became derelict over your 15 years of ownership. It might be worth getting some proper advice if you're worried about that.
Re: CGT or not?
That's very helpful, thank you. It was needing work when we got it but was habitable but has deteriorated badly since and part of the rear extension has collapsed, so your last point is very well made. Thanks again.