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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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There. I sold a BTL property in tax year 14/15. I own 7

Customer Question

Hi There. I sold a BTL property in tax year 14/15. I own 7 BTL properties and in the last tax year I carried out a large improvement to one of the BTL properties but not the one I sold. There is a capital loss in the previous year because of this but not a revenue loss. Am I allow to use the capital loss on the other property to reduce the CGT on the property I sold and if so can I use all of it or just a percentage of it?
Many thanks.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. A capital loss can only be used when it is a realised capital loss, not a paper one. In the case of a property, a profit or loss is realised when the property is sold or given away. So, unless you have a real loss as opposed to a paper one which I assume is based on the value of the property compared to the sum of its purchase price and improvements costs carried out since purchase, you don't have a loss that can be used against the profit you have made on the property you have sold. I hope this clarifies things for you but let me know if you have any further questions.
Customer: replied 1 year ago.
The property sold was for a profit and while I have made some improvements to this property before selling it I have also made improvements to other properties. I did read somewhere that all capital losses can be used to reduce a CGT liability and it was this latter point that I am keen to check.
Many thanks,
Expert:  TonyTax replied 1 year ago.
As I said in my answer, a capital loss isn't a capital loss until the asset, in this case a property, is sold.
When you improve a property, the cost of those improvements is added to the original purchase price of the property so that when you sell it, the gain or loss is calculated by deducting the sum of the purchase price, the buying costs and the improvement costs from the net of selling costs sale proceeds.
Until you sell a property, there is no gain or loss. You wouldn't expect HMRC to tax you on the increase in value of a property you haven't sold or given away and the reverse is true for paper losses.
Customer: replied 1 year ago.
Okay, so only capital expenses, including improvements relating to the particular property sold can be used to off set against the gain and no other losses carried forward from prior years may be used. Is that correct?
Expert:  TonyTax replied 1 year ago.
You can use capital losses from earlier years against capital gains in a later year but only where those losses are "real". A "real" loss may be incurred when the asset has been sold or given away. Take a look here for information on capital losses:
https://www.gov.uk/capital-gains-tax/losses
Improvement costs are not capital losses. The are added to the original purchase price of the property. When that property is sold, you make a profit or a loss.

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