CGT When Selling - Allowable Expenses

[waterpolo]

HI,

I bought the house for £100,000.

I aim to sell for £120,000

I understand that If I had to refurbish before letting I could add this to the base cost. (eg. replacing the bathroom which was in a poor state of repair).

1)So If I spent £3000, then base cost would be £103,000? before applying CGT, so the CGT would be applied on £17,000? (I also understand you can add legal fees etc.)

2)What happens if I did works on the house some time after the first tennant moved in - (eg. spending £2000 on replacing the kitchen) - can these be added to the base cost?

3)I made an overall rental loss over 6 years of £1,000, (as filed in tax returns) - can this rental loss be added to the base cost?

4)Do I need to see a tax accountant before or after selling - anyone reccomend one in cumbria?

cheers All

[Melboy]

A very basic answer to your question is yes, you can deduct as an allowance any capital expenditure like bathroom fits, replacing windows, kitchens etc. when calculating CGT for selling purposes at a later date..... and you must have documentation to support this by way of invoices and receipts etc. but once you have started letting out with tenants any improvements you make should be a tax deductable item when calculating your rental income profit and loss for the financial year.

It might pay you to consult a tax expert on this matter.

Mel.

[louise roberts]

HI,

I bought the house for £100,000.

I aim to sell for £120,000

I understand that If I had to refurbish before letting I could add this to the base cost. (eg. replacing the bathroom which was in a poor state of repair).

1)So If I spent £3000, then base cost would be £103,000? before applying CGT, so the CGT would be applied on £17,000? (I also understand you can add legal fees etc.)

2)What happens if I did works on the house some time after the first tennant moved in - (eg. spending £2000 on replacing the kitchen) - can these be added to the base cost?

3)I made an overall rental loss over 6 years of £1,000, (as filed in tax returns) - can this rental loss be added to the base cost?

4)Do I need to see a tax accountant before or after selling - anyone reccomend one in cumbria?

cheers All

Hi

I'm a Chartered Tax Adviser and I just happened across this site when I was having a break from doing tax returns and trying to decide whether I should invest in residential property just now! I saw your post and thought I would answer it for you.

Firstly, your base cost includes the actual amount you paid for the property and includes the legal fees, SDLT and survey fees (but not if the survey was only required by the lender) etc. It also includes any enhancement expenditure which is expenditure that improves the value of the house rather than straightforward repairs or redecoration. The thing to watch is what you've already claimed for income tax. If you've claimed the new kitchen as repairs or a certain proportion of it, you can't then claim the same thing as capital.

Secondly, I'm afraid you can't claim the loss as part of your base cost.

Thirdly, you can claim your incidental costs of disposal such as legal fees, estate agent fees, sellers pack fees, any other related professional fees. Your sale proceeds would be reduced by such fees.

Lastly, you don't need to see a tax accountant before selling unless there is a specific other reason to but you may prefer a tax accountant to do the tax return for you. If you're selling before 5 April 2011, the tax return reporting the gain is due by 31 January 2012, as is the tax. If you don't normally complete a tax return you will need to register before 5 October 2011 to ensure you have a reference number in time. If the property sells after 5 April 2011, the tax return is due by 31 January 2013. For these purposes, the date of the sale becomes unconditional is the sale date - not the date of completion.

Hope this helps! If you want to follow me on Twitter it's @Taxperspective.

Louise