Capital gains tax on future sale of house
Discussion
I'm asking for help understanding what HMRC will expect from me in the future relating to offsetting improvement expenses on a house against CGT charged against increases in value.
I'm currently refurbishing a property which isn't my main residence. The works being done will add value on which CGT will be due once eventually sold but there's no plans to sell for many years in the future.
I understand that money spent on the refurbishment can be offset against CGT but what records am I expected to keep and for how long? If I spend £50 on timber at the local builders merchant for say a roof extension which is costing £2K altogether, am I expected to keep that £50 receipt for 20 years when I sell eventually or can I just have a spreadsheet with a breakdown of expenditures which says roof extension £2K? How do I account for the builder who comes and does a job and doesn't issue a receipt? What about lost receipts for work which has clearly been done?
Is there anyway to register the claim against future CGT at this stage?
I'm currently refurbishing a property which isn't my main residence. The works being done will add value on which CGT will be due once eventually sold but there's no plans to sell for many years in the future.
I understand that money spent on the refurbishment can be offset against CGT but what records am I expected to keep and for how long? If I spend £50 on timber at the local builders merchant for say a roof extension which is costing £2K altogether, am I expected to keep that £50 receipt for 20 years when I sell eventually or can I just have a spreadsheet with a breakdown of expenditures which says roof extension £2K? How do I account for the builder who comes and does a job and doesn't issue a receipt? What about lost receipts for work which has clearly been done?
Is there anyway to register the claim against future CGT at this stage?
Yes you need to keep all the receipts as HMRC could question the improvements.
You should get a receipt off the builder. If you don't, then it's fairly obvious why you haven't. If you've made a bank transfer, then the best you can do is annotate the bank statement with their details on. HMRC could deny relief on this if they were to check.
The above will apply for lost receipts as well, but again HMRC could deny relief. The claim is self-assessing, so it's up to you what you claim.
HMRC only check a tiny proportion of CGT sales, and usually there's a reason why- reliefs claimed/large size etc.
There is no way to claim anything in advance. If it worries you, your best bet is to keep a 'diary' with all the details of work done, costs, photos etc.
You should get a receipt off the builder. If you don't, then it's fairly obvious why you haven't. If you've made a bank transfer, then the best you can do is annotate the bank statement with their details on. HMRC could deny relief on this if they were to check.
The above will apply for lost receipts as well, but again HMRC could deny relief. The claim is self-assessing, so it's up to you what you claim.
HMRC only check a tiny proportion of CGT sales, and usually there's a reason why- reliefs claimed/large size etc.
There is no way to claim anything in advance. If it worries you, your best bet is to keep a 'diary' with all the details of work done, costs, photos etc.
Re receipts.
Lived in a house did lots of alterations before renting it out. Never considered later consequences for CGT on sale.
I listed them all out =just about all of them could be seen from the estate agents brochure from when I bought the property,(without them) to brochure on my sale.
To give you some idea
Flat felt roof on rear extension replaced with tiled sloping roof with velux windows
Rear window removed and replaced with patio doors after mpving kitchen to other end of kitchen diner.
All plaster work, electrice to do abobe,
Refurbished down stairs W.C.- new back to wall toilet, sink, new doors and ovehead covers.
Complete landscaping to rear garden, new garage base future project) and large part block paved and part new lawn and revised planting(veg) area
Replaced non working gas fire in lounge by reinstating fireback, new open fire.
Came to a something over £20k. (more than 10 years ago)
With estate agents brochure tax man accepted it all - no questions asked.
Only made about £5k on sale of house( after renting it out) but with above was able to c/f the loss. Bought sis out of ex parents house after. Sold that this year - market changed completely and by various means(including above loss) finished up with CGT liability of 5.5% instead of 15%.(after taking account of CGT allowance.(£6k this tax year educing to £3k next tax year.
So well worth the effort. but tax may make a different decision depending on circumstances
Lived in a house did lots of alterations before renting it out. Never considered later consequences for CGT on sale.
I listed them all out =just about all of them could be seen from the estate agents brochure from when I bought the property,(without them) to brochure on my sale.
To give you some idea
Flat felt roof on rear extension replaced with tiled sloping roof with velux windows
Rear window removed and replaced with patio doors after mpving kitchen to other end of kitchen diner.
All plaster work, electrice to do abobe,
Refurbished down stairs W.C.- new back to wall toilet, sink, new doors and ovehead covers.
Complete landscaping to rear garden, new garage base future project) and large part block paved and part new lawn and revised planting(veg) area
Replaced non working gas fire in lounge by reinstating fireback, new open fire.
Came to a something over £20k. (more than 10 years ago)
With estate agents brochure tax man accepted it all - no questions asked.
Only made about £5k on sale of house( after renting it out) but with above was able to c/f the loss. Bought sis out of ex parents house after. Sold that this year - market changed completely and by various means(including above loss) finished up with CGT liability of 5.5% instead of 15%.(after taking account of CGT allowance.(£6k this tax year educing to £3k next tax year.
So well worth the effort. but tax may make a different decision depending on circumstances
Eric Mc said:
With CGT, the taxpayer may need to retain original documentation for many, many years, sometimes even decades.
You need to have a good filing system
Eric, I know your an accountant but you are a little behind the times when it comes to receipts. HMRC are more than happy with digital/scanned receipt's and have been for quite a while. You need to have a good filing system
How on earth would Amazon for example go about printing off a receipt and posting it for every purchase?
Get a free Google account and scan or photograph all receipts in to your Google drive. Believe me Google are far safer for storage than a cardboard box in your loft.
Refurbishment - not really a relevant concept to HMRC
Improvement = allowable
Repair = not allowable
As Eric has said, you need to keep full documentation of expenditure and also a clear record of why it was spent. Everything depends on the particular facts,
Example:
Leaking roof roof replacement = repair. Not allowable.
Raise and replace the leaking roof to make room for new bedrooms in the attic = improvement. Allowable.
Improvement = allowable
Repair = not allowable
As Eric has said, you need to keep full documentation of expenditure and also a clear record of why it was spent. Everything depends on the particular facts,
Example:
Leaking roof roof replacement = repair. Not allowable.
Raise and replace the leaking roof to make room for new bedrooms in the attic = improvement. Allowable.
Panamax said:
Refurbishment - not really a relevant concept to HMRC
Improvement = allowable
Repair = not allowable
As Eric has said, you need to keep full documentation of expenditure and also a clear record of why it was spent. Everything depends on the particular facts,
Example:
Leaking roof roof replacement = repair. Not allowable.
Raise and replace the leaking roof to make room for new bedrooms in the attic = improvement. Allowable.
Generally what you say is right, but context is very important. If the property was just purchased (about to be rented) or the status was changing from residential to rental property, then your repair examples would be allowable for CGT. Indeed HMRC would require you to add them to the cost of the property for CGT purposes.Improvement = allowable
Repair = not allowable
As Eric has said, you need to keep full documentation of expenditure and also a clear record of why it was spent. Everything depends on the particular facts,
Example:
Leaking roof roof replacement = repair. Not allowable.
Raise and replace the leaking roof to make room for new bedrooms in the attic = improvement. Allowable.
lrdisco said:
Eric, I know your an accountant but you are a little behind the times when it comes to receipts. HMRC are more than happy with digital/scanned receipt's and have been for quite a while.
How on earth would Amazon for example go about printing off a receipt and posting it for every purchase?
Get a free Google account and scan or photograph all receipts in to your Google drive. Believe me Google are far safer for storage than a cardboard box in your loft.
I'm well aware of what HMRC accepts. I wasn't specifically referring to paper documentation. Whatever format you keep your records in, you may need to keep them for a very long time. In actual fact, if you only retained them digitally, you might need to ensure that they are still accessable years down the line even if the storage method you originally used to save and store them is now obsolete. So, still a fair bit of responsibility on the shoulders of the taxpayer in keeping their records in such a way that they are viewable many years later.How on earth would Amazon for example go about printing off a receipt and posting it for every purchase?
Get a free Google account and scan or photograph all receipts in to your Google drive. Believe me Google are far safer for storage than a cardboard box in your loft.
Eric Mc said:
lrdisco said:
Eric, I know your an accountant but you are a little behind the times when it comes to receipts. HMRC are more than happy with digital/scanned receipt's and have been for quite a while.
How on earth would Amazon for example go about printing off a receipt and posting it for every purchase?
Get a free Google account and scan or photograph all receipts in to your Google drive. Believe me Google are far safer for storage than a cardboard box in your loft.
I'm well aware of what HMRC accepts. I wasn't specifically referring to paper documentation. Whatever format you keep your records in, you may need to keep them for a very long time. In actual fact, if you only retained them digitally, you might need to ensure that they are still accessable years down the line even if the storage method you originally used to save and store them is now obsolete. So, still a fair bit of responsibility on the shoulders of the taxpayer in keeping their records in such a way that they are viewable many years later.How on earth would Amazon for example go about printing off a receipt and posting it for every purchase?
Get a free Google account and scan or photograph all receipts in to your Google drive. Believe me Google are far safer for storage than a cardboard box in your loft.
I worked for Google on their Hyperscale data centres and believe me they are extremely reliable.
But as the saying goes If your not paying then you are the product.
Hi,
(Ex-HMRC here) - Yes, you do need to keep records for any expenditure you want to claim. Deciding what is & isn't allowable for CGT purposes can be the root of much lengthy "discussion" and the more evidence you have on your side, the better. I'd side with Eric's comments - at least paper won't become an obsolete format any time soon.
Bear in mind there's always the random element. What one examiner might let pass because he/she takes a "pragmatic" approach, may incur close examination from another more pedantic.
And even in the lack of documentation, claimed expenditure might be accepted - but don't bank on it! Usually obvious stuff such as legal costs I'd have accepted without further question, but the more the expenditure looked as if it was "marginal" the more likely I'd be to ask for chapter & verse. (I tended towards the "pragmatic").
(Ex-HMRC here) - Yes, you do need to keep records for any expenditure you want to claim. Deciding what is & isn't allowable for CGT purposes can be the root of much lengthy "discussion" and the more evidence you have on your side, the better. I'd side with Eric's comments - at least paper won't become an obsolete format any time soon.
Bear in mind there's always the random element. What one examiner might let pass because he/she takes a "pragmatic" approach, may incur close examination from another more pedantic.
And even in the lack of documentation, claimed expenditure might be accepted - but don't bank on it! Usually obvious stuff such as legal costs I'd have accepted without further question, but the more the expenditure looked as if it was "marginal" the more likely I'd be to ask for chapter & verse. (I tended towards the "pragmatic").
Tax and accounting are not 100% logic or facts. There is a huge amount of judgement involved. Two accountants (or two tax men/women) might look at the exact same facts and (correctly) arrive at different judgments.
That's why lay people struggle so much with such matters as it's hardly ever a simple black and white issue.
That's why lay people struggle so much with such matters as it's hardly ever a simple black and white issue.
Eric Mc said:
Tax and accounting are not 100% logic or facts. There is a huge amount of judgement involved. Two accountants (or two tax men/women) might look at the exact same facts and (correctly) arrive at different judgments.
Which links neatly back to your previous point about good record keeping. The more evidence a taxpayer can put into play the better the chance of successfully making their case.And again, as you previously mentioned those records may need to be kept for a very long time. The usual "six or seven years in the absence of fraud" is not relevant here. If a rental property was bought and improved in 2005 the records need to still be available when it's sold in 2032.
Mr HMRC doesn't often ask questions but when he does he expects solid answers.
Pistom said:
I'm asking for help understanding what HMRC will expect from me in the future relating to offsetting improvement expenses on a house against CGT charged against increases in value.
I'm currently refurbishing a property which isn't my main residence. The works being done will add value on which CGT will be due once eventually sold but there's no plans to sell for many years in the future.
I understand that money spent on the refurbishment can be offset against CGT but what records am I expected to keep and for how long? If I spend £50 on timber at the local builders merchant for say a roof extension which is costing £2K altogether, am I expected to keep that £50 receipt for 20 years when I sell eventually or can I just have a spreadsheet with a breakdown of expenditures which says roof extension £2K? How do I account for the builder who comes and does a job and doesn't issue a receipt? What about lost receipts for work which has clearly been done?
Is there anyway to register the claim against future CGT at this stage?
You've not said what you'll be doing with the property between now and 'many years in the future'.I'm currently refurbishing a property which isn't my main residence. The works being done will add value on which CGT will be due once eventually sold but there's no plans to sell for many years in the future.
I understand that money spent on the refurbishment can be offset against CGT but what records am I expected to keep and for how long? If I spend £50 on timber at the local builders merchant for say a roof extension which is costing £2K altogether, am I expected to keep that £50 receipt for 20 years when I sell eventually or can I just have a spreadsheet with a breakdown of expenditures which says roof extension £2K? How do I account for the builder who comes and does a job and doesn't issue a receipt? What about lost receipts for work which has clearly been done?
Is there anyway to register the claim against future CGT at this stage?
Will you live in it at any point, will you holiday let or rent it out? All have an impact on CGT.
As has already been put forward below many repairs are not allowed against GCT, but would be allowed against taxable income if its being rented or let.
When engaging any builders you'd need to be clear that any work is to be invoiced and paid via bank transfer.
Eric Mc said:
bennno said:
When engaging any builders you'd need to be clear that any work is to be invoiced and paid via bank transfer.
Payment by bank is not obligatory. Any method of payment is perfectly allowable. The key thing is having authentic, verifiable invoices from the suppliers used.My previous experience has been that any builder insisting on, or offering a discount for cash, is probably more than a bit dodgy.
bennno said:
Noted, belt and braces perhaps, easier to show and invoice and proof of payment.
My previous experience has been that any builder insisting on, or offering a discount for cash, is probably more than a bit dodgy.
Yes - cash offers less evidence but it is nOT illegal to pay people by cash.My previous experience has been that any builder insisting on, or offering a discount for cash, is probably more than a bit dodgy.
PROVING payments made by cash might be a bit more difficult but -
a) if the supplier is genuine
b) the expense is supported by a proper, legitimate invoice
then the cost would be fully evidenced and can be used as evidence of cost incurred
bennno said:
You've not said what you'll be doing with the property between now and 'many years in the future'.
Will you live in it at any point, will you holiday let or rent it out? All have an impact on CGT.
As has already been put forward below many repairs are not allowed against GCT, but would be allowed against taxable income if its being rented or let.
When engaging any builders you'd need to be clear that any work is to be invoiced and paid via bank transfer.
Thank you - yes, these are good points but I'm still not sure how I'll end up using the property. Also a good point re bank transfers.Will you live in it at any point, will you holiday let or rent it out? All have an impact on CGT.
As has already been put forward below many repairs are not allowed against GCT, but would be allowed against taxable income if its being rented or let.
When engaging any builders you'd need to be clear that any work is to be invoiced and paid via bank transfer.
Eric Mc said:
Any method of payment is perfectly allowable. The key thing is having authentic, verifiable invoices from the suppliers used.
Indeed. Although it's difficult to be holding cash unless you've either,a) Drawn it out of the bank and it's still reflected on the bank statement, or
b) Your customers are paying you in cash and you're then paying suppliers in cash.
When Mr HMRC encounters situation (b) in his CGT enquiries he'll probably want to have a little chat about income tax, VAT and potentially awkward matters like that. But if everything's properly accounted for there shouldn't be any problems.
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