CAPITAL GAINS Incidental costs allowable

Capital gains allowable expenses

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I have read CG15250 of the Capital Gains Manual provided by HMRC. I am currently completing a capital gains calaculation for a residential property.

Reassurance of disallowable incidental costs would be appreciated. My completion statement includes the following :-

1. Fee for acting for your lender. 2. Management company fee. 3. Deed of covenant fee. 4. Certificate of compliance fee. 5. Arranging indemnity fee. 6. Chancel repair liability insurance. 7. Verification of banks details. 8. Electronic transfer fee. 9. Lender panel management fee.

The list goes on. Do these fees come under the title of 'legal adviser fees' and therefore allowable  or disallowable? Is HMRC only allowing the legal advisor's time, stamp duty, valuation costs, advertising, etc per CG15250? Initially I disallowed anything to do will the mortgage and allowed the rest but I'm not sure.......when calling HMRC agent line they referred me back to the capital gains manual.

. I haven't done a capital gains calculation for years so would welcome any replies.

 

 

Replies (13)

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By Paul Crowley
23rd Nov 2022 18:11

You did ask a couple of days ago
I refer to my previous answer

As per Al Murray on Name a country, we have defeated them

Uganda and Burkina Faso

https://www.youtube.com/watch?v=_x2ovlPr2IE

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By More unearned luck
23rd Nov 2022 19:08

As a rule of thumb, if the sol has charged VAT on the item it is part of the legal fees. As much the same question arises in VAT: is it a real disbursement (eg SDLT on a purchase) or a cost component of the service provided eg, I guess, items 7 & 8 in your list.

NB the SDLT would be allowable as a cost of conveyance, but you are asking about the remuneration etc of legal advisers.

Item 1 seems to be a cost of financing, not of disposal. Insufficient data regarding the other items. For example is the chancel insurance insuring the vendor against an unexpected bill from the PCC or insuring the sol against giving negligent advice about chancel repairs?

I suspect in practice everything on a completion statement tends to be claimed except for mortgage redemptions and apportionments, regardless of the strict legal position that HMRC say they strictly enforce.

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Replying to More unearned luck:
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By mrwmark
24th Nov 2022 11:06

Thank you for taking the time to reply.

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By Tax Dragon
23rd Nov 2022 19:16

7&8 for me sound fine. Ignoring finance costs, which you know about already, the rest for me sound like costs of owning, not of acquiring or disposing. (Though more information would be useful.)

No offence, but Paul's answer is of no technical merit. If you want to be technically correct (or, more simply, correct), then follow the CG manual (and the second response - Mul's - above).

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By David Ex
23rd Nov 2022 20:51

mrwmark wrote:

I have read CG15250 of the Capital Gains Manual provided by HMRC. I am currently completing a capital gains

To be fair to HMRC, they appear to provide a useful summary on that page:

“The expenditure must have been incurred wholly and exclusively for the purposes of the acquisition or disposal.”

Which of your list fail that test?

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Replying to David Ex:
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By mrwmark
24th Nov 2022 11:51

Thank you for taking the time to reply.

I am still confused and find guidance from HMRC sometimes not specific enough.....more case study examples would help and a general list of common disallowable expenses. You could interpret it that all the expenses have arisen as a direct result of purchasing the property. Tax wise with the expenses in or out the liability difference isn't that great. May just be cautious and allow legal time, stamp duty and bank fees.

Regards.

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Replying to mrwmark:
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By Tax Dragon
24th Nov 2022 14:21

Sure, but that a cost wouldn't have arisen had you not made a purchase isn't the test. It's costs you incur in order to make the purchase that are in point.

Take the management company fee. Is that a charge for permitting the purchase, holiday chalet style, or a contribution to the next year's shared property costs? I'm guessing the latter, else you'd be making more of a fuss over the figures.

As per my first post, a cost consequent to owning is not a cost of acquiring.

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Replying to Tax Dragon:
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By Paul Crowley
24th Nov 2022 14:32

Management co fee
Problem is lack of specific detail
If it was the cost of changing membership or moving the £1 share then I would treat as allowable.
Reason? Cannot buy property without being a member of the service charge company.
Based on dealing with service charge companies, the size of these fees have gone from trivial to significant in recent years.

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Replying to Paul Crowley:
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By Tax Dragon
24th Nov 2022 14:43

If it's a cost of the share then that's what it's a cost of. You know, sometimes doing things properly works in the taxpayer's favour - there's no PPR on shares.

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Replying to Paul Crowley:
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By mrwmark
24th Nov 2022 15:12

Management fees as you say I think would be registration fees and I guess the purchase couldn't go ahead without notification but I am not 100% sure, I will then allow these.

Regards.

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Replying to mrwmark:
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By mrwmark
24th Nov 2022 15:19

I hope all this helps someone else as well as me.

To conclude, it doesn't leave that much that is disallowable and only a small underpay or overpay tax amount. More examples for me in the HMRC manual would help.

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Replying to Tax Dragon:
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By mrwmark
24th Nov 2022 14:59

O.K thanks again.

'It's costs you incur in order to make the purchase that are in point'

The above sentence helps.......thanks. I called the HMRC agent helpline again and they were helpful but were still unsure of certain items without further details from the acting solicitor. I have decided disallow anything to do with the mortgage (legal fees and charges), property management company fees, indemnity polices. Unsure items like deed of covenant and restriction fee, etc I will allow these and assume that they are costs incurred to make the purchase.

Regards.

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By More unearned luck
25th Nov 2022 18:59

I've just completed two CGT returns in respect of the sale of house owned by an individual (return made online) and a trust (return made on paper).

The online version asks "What was your client's additional disposal costs? For example, the amount paid to an estate agent or solicitor".

The paper version asks "What was your share of the selling costs when you disposed of the property ? For example, the amount paid to an estate agent or solicitor".

So I was wrong, the criterion for relief is simply payment to the solicitor regardless for what it is for.

What can't the two versions of the return be consistent in wording? And better and worded, so as not to mislead!

The notional tax is computed in more or less the same way as the actual tax (para 7).

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