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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I purchased a flat with a view to let. I bought the flat from

Customer Question

I purchased a flat with a view to let. I bought the flat from the mortgage company who had repossessed it from the previous owner. The flat was in a very poor condition. However the market improved and price for similar properties went up considerably. I changed my mind and decided to sell the flat after spending money to make it presentable. I had to do some plumbing, do up the bath room, toilets, kitchen, ceiling and redecoration, ie renovation.
In computing the capital gain, can I deduct the moneys spent on renovation. Please note that the flat was not let and the expenses incurred were not charged against any other income.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

You will be able to claim the improvement costs in addition to the purchase price and other expenses such as legal fees, stamp duty and selling agent fees when calculating the gain.

However, the tax office may seek to assess you as a property developer in which case any profit you make may be charged to income tax and national insurance contributions instead of to CGT. You did after all make a conscious decision to renovate the property to take advantage of increasing property prices, though the tax office don't know that of course.

If you borrowed money to buy the property, the interest charges won't be deductible in calculating a capital gain as they would have been deductible from rental income. If you disclose the profit as income, however, you will be able to claim the loan interest.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

I am not quite sure as to what you mean by:


 


"You did after all make a conscious decision to renovate the property to take advantage of increasing property prices, though the tax office don't know that of course.


"

Expert:  TonyTax replied 2 years ago.
Many people in your position disclose a profit from a short term property develpment as a capital gain. If HMRC challenge you on how the profit should be taxed, they cannot read your mind so they have to prove that you took on the project with a view to making a profit which is what trading is all about.

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