Claiming for property improvements

No receipts as > 6 years

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A client has just sold an investment property personally. He has owned the property for 20 years, he incurred improvement costs very early on but has no access to the receipts/bank statements showing this being paid etc, all we have is his estimate. On the basis that you are only required to keep receipts for six years, is one ok to claim for these? 

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By Wanderer
12th Jul 2022 14:32

SA2016 wrote:

On the basis that you are only required to keep receipts for six years, .... 

What's your basis for that statement? Surely it's (almost) 6 years after the end of the year of assessment, for business records, not six years before? Similarly isn't CGT (almost) 2 years after the year of assessment?
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Replying to Wanderer:
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By SA2016
12th Jul 2022 15:10

Agree with that but either way that means he doesn't have the receipts from that along ago and he is not expected to still hold them

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Replying to SA2016:
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By Wanderer
12th Jul 2022 15:19

Dunno if I agree with that. Think there is an expectation to have relevant records from that long ago to support a tax return entry.

See page 10 of this:-
https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

"• bills, invoices or other evidence of payment records such as bank statements and cheque stubs for costs you claim for the purchase, improvement or sale of assets"

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Replying to Wanderer:
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By richard thomas
12th Jul 2022 17:36

Records that it would be "useful" or "sensible" to keep, not a legal requirement.

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Replying to SA2016:
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By DJKL
12th Jul 2022 15:24

We still hold all ours all the way back to 1982 (actually we have the records back into the 70s), I have excel records for each property but also the actual vouchers etc- it comes with the territory of owning chargeable assets, same as I would keep copy contract notes until I sell say quoted shares.

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Replying to SA2016:
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By David Ex
12th Jul 2022 15:41

SA2016 wrote:

Agree with that but either way that means he doesn't have the receipts from that along ago and he is not expected to still hold them

Irrespective of anything at all, the long and short is that the client has zero evidence on which to make a claim for the cost of improvements.

Tough lesson. If only he’d spoken to an accountant at the outset.

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By More unearned luck
12th Jul 2022 16:15

In a case that Justin gave a link to a few days ago, the taxpayer had been caught by HMRC not declaring the cap gain made on the sale of an investment property. He asserted, with no evidence, that he has refurbished the property and the judge (Anne Redston) allowed her estimate (£10K) of the cost as a deduction from the gain.

So the answer is to estimate and say so in the white space. With SA the taxpayer must give him or herself the benefit of any doubt, alerting HMRC to the presence of the doubtful matter in the return (or its absence), and then wait for HMRC to challenge it. There is no other way of getting relief when you are uncertain. But it must be a genuinely uncertain matter.

(Not relevant to this thread, but Justin doubted that the expenditure (a new bathroom, a new kitchen and a new boiler) was capital. I share his doubts., so the taxpayer seems to have been doubly lucky in the allocation of the judge to the case).

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Replying to More unearned luck:
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By richard thomas
12th Jul 2022 17:54

Judge Redston disagrees with you about "evidence":

"he gave consistent evidence about renovating the kitchen and toilet/ bathroom, and the installation of a new boiler, both to HMRC and in his grounds of appeal to the Tribunal." Aggrey v HMRC para 26

"Having accepted his evidence that he carried out renovations and having quantified these at £10,000" ibid para 29.

Interest declared: she's an old friend of mine and a top class FTT judge (and now of the UT).

For a US take on this an even greater judge than Anne and of the best ever, Judge Billings Learned Hand said this in the 2nd Circuit Court of Appeals about the producer George M Cohan:

"In the production of his plays Cohan was obliged to be free-handed in entertaining actors, employees, and, as he naively adds, dramatic critics. He had also to travel much, at times with his attorney. These expenses amounted to substantial sums, but he kept no account and probably could not have done so. At the trial before the Board he estimated that he had spent eleven thousand dollars in this fashion during the first six months of 1921, twenty-two thousand dollars, between July first, 1921, and June thirtieth, 1922, and as much for his following fiscal year, fifty-five thousand dollars in all. The Board refused to allow him any part of this, on the ground that it was impossible to tell how much he had in fact spent, in the absence of any items or details. The question is how far this refusal is justified, in view of the finding that he had spent much and that the sums were allowable expenses. Absolute certainty in such matters is usually impossible and is not necessary; the Board should make as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making. But to allow nothing at all appears to us inconsistent with saying that something was spent. True, we do not know how many trips Cohan made, nor how large his entertainments were; yet there was obviously some basis for computation, if necessary by drawing upon the Board's personal estimates of the minimum of such expenses. The amount may be trivial and unsatisfactory, but there was basis for some allowance, and it was wrong to refuse any, even though it were the traveling expenses of a single trip. It is not fatal that the result will inevitably be speculative; many important decisions must be such. We think that the Board was in error as to this and must reconsider the evidence.

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Replying to richard thomas:
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By David Ex
13th Jul 2022 01:15

richard thomas wrote:

"he gave consistent evidence about renovating the kitchen and toilet/ bathroom, and the installation of a new boiler, both to HMRC and in his grounds of appeal to the Tribunal." Aggrey v HMRC para 26

I think Mr Aggrey got off pretty lightly. The judge said “I therefore find Mr Aggrey to be an unreliable witness” which, reading the decision, is something of an understatement.

Makes me wonder why I bother sweating over the minutiae of my own tax affairs.

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Replying to David Ex:
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By richard thomas
13th Jul 2022 07:17

I don’t see how he “got off” when he had to pay the tax and penalties and no doubt interest. The penalties were reduced because HMRC mucked them up, and the assessments were reduced because the Tribunal did what it is supposed to do which is not to always make a yes/no or win/lose decision but to determine to the best of its ability what the taxpayer’s liability is, the Elmhirst/Pegasus Birds principle reflecting that to a degree the tribunal, like the GCs before it, is sometimes inquisitorial.

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Replying to richard thomas:
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By David Ex
13th Jul 2022 12:12

richard thomas wrote:

I don’t see how he “got off” when he had to pay the tax and penalties and no doubt interest.

The penalty reductions seemed very generous and he got a £10,000 deduction from his gain with zero evidence despite having been branded an “unreliable” witness.

EDIT: It even appears HMRC gave @a round sum of £6,000 for costs relating to the purchase”!!

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By ireallyshouldknowthisbut
12th Jul 2022 16:51

Are the improvements even capital?

if its just replacing a kitchen and a new carpet whilst the client will claim 'improvements' its probably a repair...we get this all the time.

Rarely is it moving walls or an extension.

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Replying to ireallyshouldknowthisbut:
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By David Ex
14th Jul 2022 16:52

ireallyshouldknowthisbut wrote:

Are the improvements even capital?

if its just replacing a kitchen and a new carpet whilst the client will claim 'improvements' its probably a repair...we get this all the time.

And are they still there 20 years on??!

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By Justin Bryant
13th Jul 2022 09:41

As with any other civil (or criminal) case, a taxpayer's oral evidence is perfectly acceptable evidence (especially where the documentary evidence is understandably limited) and there are numerous cases confirming that point, such as para 17 et seq of the case below .

https://www.bailii.org/ew/cases/EWHC/Ch/2022/1712.html

Another example of witness evidence being accepted as proving a fact in the absence of relevant documentary evidence is at para 21 here: https://caselaw.nationalarchives.gov.uk/ukftt/tc/2022/197

Re witness statements being valid relevant evidence see para 49 et seq here.

https://caselaw.nationalarchives.gov.uk/ukftt/tc/2022/199

So, as RT says, there is no legal requirement re really old records, but obviously it would be "useful" or "sensible" to keep them.

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Replying to Justin Bryant:
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By richard thomas
13th Jul 2022 09:56

I'm interested to see that Howard Watkinson has been appointed to the FTT(TC). He appeared before me a few times for HMRC in contentious VAT (MTIC etc) and ED appeals and was notably forthright, not to say aggressive, in his advocacy (not, I hasten to add, unfairly so) for HMRC.

But as I would expect there is no hint of partisanship in this obviously correct decision.

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Replying to Justin Bryant:
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By Justin Bryant
19th Jul 2022 17:41

And here at para 20 re CGT base cost and para 26 et seq re a CGT loss claim: https://caselaw.nationalarchives.gov.uk/ukftt/tc/2022/213

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By fawltybasil2575
13th Jul 2022 10:47

@ SA2016 (OP).

When acting for a client, one has to form a judgment as to whether one has received, from the client, CORRECT information. Where, as in this case, there is (in this case reasonably so) an absence of documentation, then one’s duty (ethically, legally and morally) is to DISCUSS the expenditure with the client. One should seek to “ascertain the STORY” behind the expenditure – this can in most cases only realistically be done by way of a meeting or phone call, in view of the need for a “back and forth” approach to the DISCUSSION.

Hence, one might ask why the expenditure was incurred, who undertook the work, why that person was appointed to do the work, from what monies the expenditure was incurred, how long the work took, how many workmen were involved, whether one obtained estimates for the work, whether there is still evidence now of the work on the property etc etc etc etc. In many aspects of course the client may only be able to give “from memory” answers.

If, after the discussion, one is satisfied as to the client’s estimate of the expenditure then one MUST (not may) include that expenditure on the Tax Return, making the appropriate “white space” note if the amount is material. One must NOT adopt the policy of “there’s no paperwork so I shall not include the expenditure on the Tax Return” – one’s obligation is to complete the Tax Return in accordance with both (i) the relevant paperwork AND (ii) the client’s recollection of events in relation to matters for which there is no paperwork (if one is satisfied that the client’s recollection is, on the balance of probabilities, correct).

If one adopts the above approach (the ONLY correct approach) then one is able to support the client (in assisting the client in corresponding with HMRC, and if necessary thereafter, if one is comfortable with such advocacy role, at Tribunal).

In may respects, one should subconsciously be aware that any Tribunal will adopt the same inquisitorial policy to the expenditure as oneself (whether the Tribunal arrives at the same conclusion as oneself is not a factor – one’s obligation, to reaffirm, is to honestly submit a Tax Return which the client confirms as correct (and which one is satisfied oneself is correct).

It is essential, when submitting the Tax Return to the client for approval, to draw their specific attention to the “no paperwork” aspect, explaining that one has included the expenditure at issue after detailed enquiry with the client, and advise of the possibility of challenge by HMRC (and the possible consequences if such HMRC challenge is successful). In many cases, if the amount is material, one should advise the client to PAY HMRC on the basis of what the tax liability WOULD BE if the Tax Return is successfully challenged by HMRC (this avoids the possibility of Interest being payable if HMRC are ultimately successful in their challenge; and may assist in any Penalty scenarios).

Basil.

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Replying to fawltybasil2575:
By JCresswellTax
19th Oct 2022 10:27

fawltybasil2575 wrote:

@ SA2016 (OP).

When acting for a client, one has to form a judgment as to whether one has received, from the client, CORRECT information. Where, as in this case, there is (in this case reasonably so) an absence of documentation, then one’s duty (ethically, legally and morally) is to DISCUSS the expenditure with the client. One should seek to “ascertain the STORY” behind the expenditure – this can in most cases only realistically be done by way of a meeting or phone call, in view of the need for a “back and forth” approach to the DISCUSSION.

Hence, one might ask why the expenditure was incurred, who undertook the work, why that person was appointed to do the work, from what monies the expenditure was incurred, how long the work took, how many workmen were involved, whether one obtained estimates for the work, whether there is still evidence now of the work on the property etc etc etc etc. In many aspects of course the client may only be able to give “from memory” answers.

If, after the discussion, one is satisfied as to the client’s estimate of the expenditure then one MUST (not may) include that expenditure on the Tax Return, making the appropriate “white space” note if the amount is material. One must NOT adopt the policy of “there’s no paperwork so I shall not include the expenditure on the Tax Return” – one’s obligation is to complete the Tax Return in accordance with both (i) the relevant paperwork AND (ii) the client’s recollection of events in relation to matters for which there is no paperwork (if one is satisfied that the client’s recollection is, on the balance of probabilities, correct).

If one adopts the above approach (the ONLY correct approach) then one is able to support the client (in assisting the client in corresponding with HMRC, and if necessary thereafter, if one is comfortable with such advocacy role, at Tribunal).

In may respects, one should subconsciously be aware that any Tribunal will adopt the same inquisitorial policy to the expenditure as oneself (whether the Tribunal arrives at the same conclusion as oneself is not a factor – one’s obligation, to reaffirm, is to honestly submit a Tax Return which the client confirms as correct (and which one is satisfied oneself is correct).

It is essential, when submitting the Tax Return to the client for approval, to draw their specific attention to the “no paperwork” aspect, explaining that one has included the expenditure at issue after detailed enquiry with the client, and advise of the possibility of challenge by HMRC (and the possible consequences if such HMRC challenge is successful). In many cases, if the amount is material, one should advise the client to PAY HMRC on the basis of what the tax liability WOULD BE if the Tax Return is successfully challenged by HMRC (this avoids the possibility of Interest being payable if HMRC are ultimately successful in their challenge; and may assist in any Penalty scenarios).

Basil.

Absolutely spot on Basil on a technical and practical level.

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Replying to fawltybasil2575:
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By Roland195
19th Oct 2022 11:28

Not that it needs it but just to add to Basil's excellent post, It's difficult to be in the position of having no paperwork, if not necessarily the receipts/invoices for most of the capital expenditure typically incurred with property.

The Home Report (or whatever you have in Englandshire) can contain details of when works were carried out for instance - can be a starting point for discussion anyway.

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By richard10002
18th Jul 2022 10:15

This seems fairly clear:

https://www.gov.uk/capital-gains-tax/records

"If you do not have records
You must try to recreate your records if you cannot replace them after they’ve been lost, stolen or destroyed.
If you fill in your tax return using recreated records, you’ll need to show where figures are:
estimated - that you want HMRC to accept as final
provisional - that you’ll update later with the actual figures"

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Replying to richard10002:
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By DJKL
19th Oct 2022 12:52

Other areas where expenditure might be inferred could be correspondence with lenders, insurers etc over the years.

I do find it strange that cost data is not retained by people, what is so difficult about stuffing receipts in a wallet file and not throwing out the wallet file.

I keep vast amounts of personal paperwork from earlier years re our pensions and life policies, all in a two drawer filing cabinet at home, and with these I will never need it for tax but I keep it to monitor financial progress (or in the last year financial retreat)

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