FREEHOLD IMPROVEMENTS AND CAPITAL GAINS

General repairs, tools and personal protection equipment

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HMRC state within their manual that if a property is purchased at a low market value due to it's condition that all the repairs both major and minor should be capitalised, I assume that these are the ones just after purchase to bring it into a useable state and are therefore allowable for Capital Gains Tax. Say for example a tool for £250 is purchased to carry out a repair and it's value after heavy use is say £100, am I O.K to add £150 to the cost of the repairs as they couldn't be carried out without the tool? The same goes for personal protection equipment e.g masks as the repairs couldn't be carried out without them?  Minor amounts I guess but just want to be sure. Any comments welcome.

 

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Replies (5)

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DougScott
By Dougscott
13th Apr 2024 23:40

I'd go along with that.

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Replying to Dougscott:
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By FactChecker
14th Apr 2024 13:51

So have you, Ruddles and Justin come to a joint agreement on when (and which type of) repairs are allowable as a deduction for CGT purposes?
It seems to be somewhat up in the air over at https://www.accountingweb.co.uk/any-answers/angela-rayners-cgt-computation

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By FactChecker
14th Apr 2024 13:33

Not my area ... but the legislative baseline is at https://www.legislation.gov.uk/ukpga/1992/12/section/38 ... and seems to suggest a wider interpretation than HMRC's "to bring it into a useable state".

"s38(1)(b) the amount of any expenditure wholly and exclusively incurred on the asset by him or on his behalf for the purpose of enhancing the value of the asset, being expenditure reflected in the state or nature of the asset at the time of the disposal"

Have to say I'm surprised at so wide a definition of one of "the sums allowable as a deduction from the consideration in the computation of the gain accruing to a person on the disposal of an asset" - so maybe someone with greater expertise can explain?

BTW you haven't stated who purchased the property (presumably an individual not a company)?
I ask because it sounds like the work was DiY (taxpayer bought expensive eqpt) but major structural/plumbing/electrical work usually requires certified trades - so is client a trading builder doing work on his own behalf?

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Replying to FactChecker:
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By FactChecker
14th Apr 2024 14:12

Having looked a little further, it becomes obvious why (as usual) the specifics of each case really matter - and so why a professional opinion should be sought.

Just one example ... https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15180
... which seems to make clear that costs associated with demolition work (even if essential in preparation for new construction) are not allowable.

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Replying to FactChecker:
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By mrwmark
14th Apr 2024 21:35

Thanks for taking the time to reply. It's a sole trader, one house and most of the work was carried out by him apart from a rewire and a new boiler.

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