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Landlord Insider
On the Landlord Insider blog, you’ll find some excellent resources for landlords of all sizes. From the latest landlord news, to professional advice, tips and guides for landlords, there’s something for everyone. Brought to you by the excellent team behind the Landlord Vision property management software.

Tax Tips Q&A – Selling a Property After Renovations Have Been Made

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We’re back to answer more tax questions and help you figure out what tax reliefs you can take advantage of. This week we’ll be answering questions on property renovations, more specifically what tax reliefs are available when selling a property that has had renovation work. 

These property questions and answers have been shared with us from Arthur Weller’s ‘247 Property Tax Questions Answered’.   

Selling A Property As A Sole Trader – Can I Deduct the Full Costs of Renovation?   

Question:  

I have a client who bought a property, renovated it and now is planning to sell. The whole project took a few months. I already established that it would be treated as trading rather than investment. When selling the property can we deduct the full costs of renovation? No extension to the house was built, just renovation plus new a bathroom was created.  

Answer:  

You are correct that it would be treated as trading rather than investment. You can deduct the full costs of renovation. It meets the requirement of ‘wholly and exclusively’. Furthermore if this person had to borrow money for this project, and paid interest to a lender, the interest is also an allowable expense. 

Will Essential Repair and Renovation Costs Reduce My Capital Gains Tax Liability? 

Question:  

I am selling a house which I have owned for three years in Bath, which was transferred to me by my husband. It is let in three flats. It was valued when I acquired it at £800,000, and I am selling it for £925,000 for completion of the purchase on 1 July 2018. I am 70 years old and would like clarification on the likely capital gains tax which I would be liable for. I have spent some £100,000 on essential repairs and renovations since owning the house  

Answer:  

The answer to your question involves determining the nature of your £100,000 expenditure. If it was wholly capital expenditure, it can reduce the £125,000 capital gain to £25,000. If none or only some of it was capital expenditure then the £125,000 will not be reduced, or only partly reduced, accordingly. Look at HMRC’s guidance here as well as here to find out what is capital expenditure, and what is not. 

Would I Need Renovation Receipts To Claim These Costs Against Capital Gains Tax? 

Question:  

Sixteen years ago, I had to substantially renovate a buy-to-let property in order to make it habitable for letting purposes. If I sold the property now, would the taxman require receipts for the work done if I claim the amount against any capital gain?  

Answer:  

Most likely the taxman will not ask you for receipts. However, you should have kept them according to Government’s HMRC manuals. If you do claim this capital expenditure and the taxman does write to you asking for proof, you will have to explain that you didn’t keep the receipts (if that is the case). 

For more tax advice and guidance, read Arthur Weller’s full book ‘247 Property Tax Questions Answered’ – available in the Landlords’ Tax Pack.  

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