Jennifer Adams from Tax Insider, reveals the importance of good property records. When buying and selling a property, make sure that you log the associated costs as they can be claimed when selling a property and can reduce your Capital Gains Tax bill by thousands. Keeping receipts If it cannot be proved that a particular expense was incurred (that would normally be allowable), the HM Revenue and Customs (HMRC) could seek to disallow the amount claimed, which could potentially prove very costly for the seller. Therefore a record needs to be kept of each expense, which is obviously easier to do at the date incurred rather than years after the event. Initially HMRC used the Land Registry records and Rightmove to identify owners who had sold CGT chargeable properties but had not told the Taxman. However, HMRC are taking the search further by linking computer systems and checking the self-assessment tax returns of landlords and second-home owners who correctly declared that a sale had taken place, but had either claimed expense deductions twice, once against rental income and again as a capital expense in the CGT calculation, or had made a claim for a capital expense when it was not. Remember:
- Repair and maintenance costs incurred on an existing part of a property (for example, decorating) are allowed but as an income expense rather than a capital expense. Some landlords would incorrectly try to claim this expense as capital if the rental accounts showed a loss and were unable to obtain income tax relief thereon.
- Any improvement or enhancement cost that adds to the value of the property, which is still present at the time of the sale is allowed as a capital expense. Such costs would be, for example, for loft conversions, extensions, a new conservatory or the building of a garage. The HMRC website gives an example of allowing the cost of installation of a new swimming pool to be classed as adding value to the property, but insisting that the pool is still available for use on sale and that it is not filled in.
- Purchase price or 31 March 1982 valuation
- Stamp Duty Land Tax paid
- Acquisition or sale costs plus VAT thereon i.e. fees paid for professional advice including agents’ commission fees, survey costs, conveyance fees and valuation fees. Such expenses incurred in connection with the first letting of a property for more than one year are deemed a capital expense and are therefore allowable. Such expenses for a let of a year or less are deductible as an income expense against rents received for that year and…
- Improvement costs.
- Actual contracts for the purchase and sale, lease or exchange of the property
- Any documentation that describes properties acquired but not purchased, for example, by a gift or inheritance
- Details of any property given away or placed into a trust
- Copies of any valuations used in the CGT calculation
- Bills, invoices or other evidence of payment records such as bank statements and cheque stubs for costs claimed for the purchase, improvement or sale of the property.
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