Cost offsets for Capital Gains on an inherited house

We’re trying to work out the Capital Gains due on an inherited house. We would like to know whether the following could be counted as improving the property & therefore be deducted from the gain as costs (we have receipts & certificates to prove) : 1. Removing an old inefficient boiler & replacing with a new top-of-the-range condensing boiler 2. Removing very old electrics (fusebox, sockets, wiring) & installing a new Building Regulations compliant basic system 3. Installing permanent fencing (concrete posts & base with wooden panels). One stretch borders the house next door with a mix of some replacement panels only & some completely new fencing. A new stretch on the other side of the house is to prevent intruder access to the back of the house after removal of a damaged old shed. We have looked at the HMRC page “Tax when you sell property” but it doesn’t answer these questions. ps: this question was appended to a previous post over a week ago. Put in a dedicated post here since our 60 day limit to report gains is running out. Grateful for any advice. Thank you.

Or would it be better to just detail the improvements & costs when reporting our capital gains & let HMRC decide then if those costs can be deducted? Thanks again.

Hi,

One of the key considerations when deciding whether a repair is a deductible expense is whether it is revenue or capital. Revenue expenses are generally repairs and maintenance (property repairs). Examples of this are replacing a boiler, re-wiring, windows, roof, kitchen & bathroom and so on. They do the same thing as before.  

Capital expenses are considered to be improvements, such as structural changes, eg new conservatory, extension where there was nothing there before.

A new state of the art, bespoke kitchen can be considered capital, when it replaces a standard kitchen and is an improvement over the old kitchen, for example an old all in one cooker is replaced with designer hobs and fitted ovens. 

It is largely a question of fact and degree in each case, whether expenditure on a property leads to an improvement.

PIM2030 - Deductions: repairs: is it capital?

Thank you.

Hi James Eddie,

No, you must work out the gain yourself.

Thank you.

Dear HMRC Admin, Thanks for your latest reply. Could you clarify the following please. 1) We removed two unusable garden sheds & cleared the ground ready to be put to a new use by the buyer. Would that be counted as capital expense? PIM2030 mentions the cost of demolishing a derelict factory to clear space could count as such. 2) Whether an expense counts as an improvement or not seems a bit subjective which is why I suggested sending in the details & letting HMRC decide as HMRC must be better qualified to do so. If we work out gains assuming that some costs make an improvement but HMRC disagree, do we then just recalculate & re-submit? 3) Is it only the first report of Capital Gains that has to be within 60 days & not any re-submissions requested by HMRC? Thank you

Hi James Eddie
As you are well aware, determining whether a capital expense is incurred is very grey area, as is the legislation that PIM2030 describes.  You are expected to review the guidance and come to your own conclusion.  If you cannot, then this is where you would then need to seek professional advice from the likes of an accountant.  HMRC will not make the decision for you.  HMRC may, where there is an enquiry into your tax return, dispute your interpretation.  These differences of opinion, can sometimes end up in court, where legal experts will debate the matter and a judgement ruling one way or another is made.
Where a property or land is disposed of and a capital gain arises, then you have 60 days from the date of completion to report and pay the capital gains tax.  Any amendment to the capital gain after that are not subject to the 60 day rule.
Thank you.

Thank you for the clear explanations.