CGT - Deductions for expenditure on improvements

[Bebz007]

Hello

I was wondering if someone could tell me whether the cost of improvement works on a residential property that have been paid for by a third party (family member) would qualify as an allowable deduction for CGT purposes for the property owners.

The background is that the property is owned by mother and father, with son living at the property. Son has been renovating the property and has added and extension/new kitchen/dining area. Son has paid for the renovations.

Son has a beneficial interest in the property and mother and father are gradually transferring their respective beneficial interests (as a percentage of ownership) to son each tax year in amounts that do not trigger a CGT liability. Obviously if the improvement works qualify as an allowable deduction then mother and father can transfer a larger share without triggering any CGT liability.

Any help/guidance would be highly appreciated.

Mike

[wamstax]

Costs borne by one party (A) and not incurred or paid for by (B) cannot be claimed as allowable deductions by (B)

[wamstax]

Costs borne by one party (A) and not incurred or paid for by (B) cannot be claimed as allowable deductions by (B)

[Bebz007]

Understood - that’s very helpful, thank you.

[jerome.lane]

Understood - that’s very helpful, thank you.

If the works completed by the son could be demonstrably attributed to the interest he already beneficially owns, then any capital appreciation as a result of those works should not be included on what value the parents are giving away year by year. Figuring out what the precise capital appreciation is would be very difficult. Assuming the parents are going to survive this long term estate planning, a simple price adjuster clause in good documentation would help.

[bd6759]

I’d say that it impossible to gift an identifiable portion of a house. It’s nonsense first to suggest that a kitchen can be gifted, and then, if it were possible, that any enhancement to that kitchen does not affect the value of the whole.
The statutory formula needs to be adopted and that requires fractional apportionment if the whole.