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bigduckontax, Accountant
Category: Tax
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My query is concerning "enhancement" costs incurred prior to

Customer Question

My query is concerning "enhancement" costs incurred prior to the sale of a previously let property. My client uncured what I would describe as restoration costs totalling £3,061 to ensure they got the best offer on the sale of their property.
I have always assumed that these would count as revenue repairs and would not be allowed for CGT. I have reviewed the HMRC CGT manual and their CGT toolkit for sales of land and buildings.
I understand HMRC make the distinction by quoting Lord Emslie on his test in Aberdeen Construction Group Ltd v CIR (52TC281) "what section 38(1)(b) is looking for.......
However, even reading this quote I would argue as it says in that quote that there must be "an identifiable change for the better in the state or nature of the asset..." I would strongly argue that any restoration costs must have brought about a change in the state of the asset and indeed improved the state of the asset, and no doubt got them a much better offer.
I also now found that there is a First Tier Tribunal case John Arther Day and Jane Dalgety and HMRC TC04343 where the Tribunal disagreed with HMRC and allowed painting and decorating and wall restoration work as enhancement costs for CGT.
Can you please give me your opinion on this issue? This is a UK capital gains tax query.
Thank you
Peter
Submitted: 6 months ago.
Category: Tax
Expert:  Nicola-mod replied 6 months ago.
Hello,
I've been working hard to find a Professional to assist you with your question, but sometimes finding the right Professional can take a little longer than expected.
I wonder whether you're ok with continuing to wait for an answer. If you are, please let me know and I will continue my search. If not, feel free to let me know and I will cancel this question for you.
Thank you!
Nicola
Customer: replied 6 months ago.
Hi Nicola
I am happy to wait a day or two more to get the right person for the question.
After I asked the question I was a little surprised because the only real option was a solicitor. That is fine, but I was expecting a tax consultant option as well as those are ones who have dealt with all my previous tax questions.
Thank you
Peter
Expert:  Nicola-mod replied 6 months ago.
Hello,
We will continue to look for a Professional to assist you.
This question seems to have been sent to the Law section. I will move it for you.
Thank you for your patience,
Nicola
Customer: replied 6 months ago.
Thanks Nicola
I wasn't saying solicitors cannot deal with it, but solicitors specialising in tax might be harder to find.
Peter
Expert:  bigduckontax replied 6 months ago.

Hello Peter, I am Keith, and pleased to be able to help you with your question.

I would tend to rely on John Arther Day and Jane Dalgety providing the facts in this case are on all fours with theirs on this matter. The expenditure would then fall within an improvement under the CGT regime. I must say I am surprised that HMRC did not appeal against the decision!

I do hope that you find my reply of assistance.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3356
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 6 months ago.

Thank you for your support.

Customer: replied 6 months ago.
Hi Keith
I have managed to download a copy of the full judgement at http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=8317
Not sure if you had been able to read the judgement on pages 26-29 before you answered my question?
I guess I am just trying to determine if my client situation is indeed "on all fours" with John Arthur Day.
All I can say is that my clients intention was to sell their previously let property and of course to "restore it" to the best condition they could to maximise their sale value. The only real difference I can see with the JAD case is that my clients have held the property for years rather than a few months. Do you believe this makes my case poor?
Are you able to reply to this on the same order or will this require further costs?
Many thanks
Peter
Expert:  bigduckontax replied 6 months ago.

No Peter, I think it strengthens as to opposed to weakening your case.

Customer: replied 6 months ago.
Thank you Keith.
Expert:  bigduckontax replied 6 months ago.

Delighted to have been of assistance.

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