Property sale CGT question
Discussion
Evening folks
Have just sold a property, and have a question regarding allowable expenses for CGT
Property was main residence for 10 years, then subsequently let for a further five years before I decided to sell (empty for last 6 months). Whilst I was living there, I extended the leasehold from 88 to 167 years, and have seen some opinion that this would count as an allowable capital expense for CGT purposes. Have spent time digging through various HMRC guides, but can't seem to find a definitive answer.
Happy with all other aspects of calculation, including PRR, reduction of Final Period Exemption and loss of Letting Relief, and the final liability isn't enormous, but including leasehold cost would take final gain below annual allowance, so worth including if legitimate to do so.
Anyone able to provide or point to documents that give a definitive yay or nay? Thanks!
Have just sold a property, and have a question regarding allowable expenses for CGT
Property was main residence for 10 years, then subsequently let for a further five years before I decided to sell (empty for last 6 months). Whilst I was living there, I extended the leasehold from 88 to 167 years, and have seen some opinion that this would count as an allowable capital expense for CGT purposes. Have spent time digging through various HMRC guides, but can't seem to find a definitive answer.
Happy with all other aspects of calculation, including PRR, reduction of Final Period Exemption and loss of Letting Relief, and the final liability isn't enormous, but including leasehold cost would take final gain below annual allowance, so worth including if legitimate to do so.
Anyone able to provide or point to documents that give a definitive yay or nay? Thanks!
The general tax principle is that costs involved in extending an existing lease is usually looked on as a "revenue" type cost rather than a "capital" costs and is therefore offsetable against RENTAL income rather than a Capital Gain.
However, under Extra Statutory Concession ESC39 (the link posted above) , it CAN be allowable against a capital gain. In other words, HMRC has ignored their own rules to allow this cost when computing a Capital Gain.
Are you aware that under recent Capital Gains Tax changes you MUST report and PAY the Capital Gains tax arising on the disposal of this property within 30 days of the Exchange of Contracts date?
However, under Extra Statutory Concession ESC39 (the link posted above) , it CAN be allowable against a capital gain. In other words, HMRC has ignored their own rules to allow this cost when computing a Capital Gain.
Are you aware that under recent Capital Gains Tax changes you MUST report and PAY the Capital Gains tax arising on the disposal of this property within 30 days of the Exchange of Contracts date?
Eric Mc said:
The general tax principle is that costs involved in extending an existing lease is usually looked on as a "revenue" type cost rather than a "capital" costs and is therefore offsetable against RENTAL income rather than a Capital Gain.
However, under Extra Statutory Concession ESC39 (the link posted above) , it CAN be allowable against a capital gain. In other words, HMRC has ignored their own rules to allow this cost when computing a Capital Gain.
Not heard of this before when I had CGT to do on sale of property was done when property was sold. However, under Extra Statutory Concession ESC39 (the link posted above) , it CAN be allowable against a capital gain. In other words, HMRC has ignored their own rules to allow this cost when computing a Capital Gain.
Maybe daft question but can a residential landlord offset the cost of the lease extension against revenue costs and if it is possible whats the procedure
TIA
That's the right date.
It's been a nice easy bit of tax collection for HMRC with the bonus of improving their cash flow by bringing forward the payment date.
CGT has always been a tax that collects very little net money compared with, say, Income Tax and VAT. Part of the problem for HMRC is it's difficult to police and the calculations are tricky to check - putting it low on the list for cost-effective use of properly trained staff. Getting the tax collected from UK property transactions on a "PAYE" basis is a significant step forward for them, especially as there's usually a solicitor or other adviser looking over the shoulder of the taxpayer. It usefully hoovers up disposals by foreign owners of UK property as well.
It's been a nice easy bit of tax collection for HMRC with the bonus of improving their cash flow by bringing forward the payment date.
CGT has always been a tax that collects very little net money compared with, say, Income Tax and VAT. Part of the problem for HMRC is it's difficult to police and the calculations are tricky to check - putting it low on the list for cost-effective use of properly trained staff. Getting the tax collected from UK property transactions on a "PAYE" basis is a significant step forward for them, especially as there's usually a solicitor or other adviser looking over the shoulder of the taxpayer. It usefully hoovers up disposals by foreign owners of UK property as well.
Eric Mc said:
The general tax principle is that costs involved in extending an existing lease is usually looked on as a "revenue" type cost rather than a "capital" costs and is therefore offsetable against RENTAL income rather than a Capital Gain.
However, under Extra Statutory Concession ESC39 (the link posted above) , it CAN be allowable against a capital gain. In other words, HMRC has ignored their own rules to allow this cost when computing a Capital Gain.
Are you aware that under recent Capital Gains Tax changes you MUST report and PAY the Capital Gains tax arising on the disposal of this property within 30 days of the Exchange of Contracts date?
To answer the last question first, yep, aware of the change - this question has arisen in the course of preparing the claim (sale completed last week). Ditto the end period reduction and loss of letting relief.However, under Extra Statutory Concession ESC39 (the link posted above) , it CAN be allowable against a capital gain. In other words, HMRC has ignored their own rules to allow this cost when computing a Capital Gain.
Are you aware that under recent Capital Gains Tax changes you MUST report and PAY the Capital Gains tax arising on the disposal of this property within 30 days of the Exchange of Contracts date?
Regarding the extension, this was done whilst I was living in the property (before letting), so rental income offset never arose. Have checked the linked manual, and I can sort of follow, but will need to dig a bit more to be comfortable.
Also found this list of ESCs:-
https://assets.publishing.service.gov.uk/governmen...
D42. Mergers of leases
Where a leaseholder of land acquires a superior interest in that land (either a superior
lease or the freehold reversion) so that the first lease is extinguished the two assets are
merged within the meaning of Section 43 TCGA 1992. On a subsequent disposal the
allowable expenditure will include:
- the cost of the first lease (after exclusion if appropriate of that part ‘wasted’ down to the
date of acquisition of the superior interest (Schedule 8 TCGA 1992, in the case of
a lease with 50 years or less to run); and
- the cost of the superior interest. If the superior interest is itself a lease with 50 years or
less to run, the total of these two amounts will be ‘wasted’ down to the date of
disposal under Schedule 8 TCGA 1992.
New lease was for 99 years, so the "wasting" rule doesn't apply. For my purposes, it would seem the highlighted text is the part that applies? Shall read some more, but appreciate the pointers. Existing liability isn't exceptional, and not looking to avoid anything by bending any rules, just wanted something I could point to that would support the leasehold extension costs as allowable, which I think the above does. Maybe append it to scans of the supporting documents
rockin said:
That's the right date.
It's been a nice easy bit of tax collection for HMRC with the bonus of improving their cash flow by bringing forward the payment date.
CGT has always been a tax that collects very little net money compared with, say, Income Tax and VAT. Part of the problem for HMRC is it's difficult to police and the calculations are tricky to check - putting it low on the list for cost-effective use of properly trained staff. Getting the tax collected from UK property transactions on a "PAYE" basis is a significant step forward for them, especially as there's usually a solicitor or other adviser looking over the shoulder of the taxpayer. It usefully hoovers up disposals by foreign owners of UK property as well.
A wee sigh of relief there, sold a property on 28th February 2020 so will be getting rinsed when I get around to doing my SA as what I did a couple years ago.It's been a nice easy bit of tax collection for HMRC with the bonus of improving their cash flow by bringing forward the payment date.
CGT has always been a tax that collects very little net money compared with, say, Income Tax and VAT. Part of the problem for HMRC is it's difficult to police and the calculations are tricky to check - putting it low on the list for cost-effective use of properly trained staff. Getting the tax collected from UK property transactions on a "PAYE" basis is a significant step forward for them, especially as there's usually a solicitor or other adviser looking over the shoulder of the taxpayer. It usefully hoovers up disposals by foreign owners of UK property as well.
CGT is a bit of a nightmare from the laymans perspective and some of the guidance on HMRCs website is wooly at times!
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