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Heads up! As of the 31st October 2024, the lower rate of Capital Gains Tax will increase from 10% to 18%, while the higher rate will rise from 20% to 24%.Â
If you’re selling a second home, don’t worry – the current rates of 18% and 24% for property sales aren’t changing.
🚨For the full scoop on this year’s Autumn Budget, check out our blog. 🚨
Are you thinking about selling a capital asset – such as a home, investment property or even a piece of art – and not sure what improvements are allowed for Capital Gains Tax (UK)? Maybe you’re just thinking about making improvements to the asset for now?
When you sell your asset, you’ll make a capital gain. And this means you’ll need to pay tax too!
How much CGT you’ll pay depends on:
In this guide, we’ll be looking at the improvements side of things, helping you understand what improvements are allowed for Capital Gains Tax (UK).
You can’t always deduct improvement costs from Capital Gains Tax. So what exactly counts as an improvement?
HMRC looks at improvements based on three things:
It might sound obvious, but any improvements will need to be made to the asset itself to count. Any improvements outside of this aren’t allowable expenses.
Here’s an example! Let’s imagine you own a classic car you’d like to sell. Before selling, you have some of the paintwork restored for £2,000.
The restorer suggests you have some repairs carried out on your driveway, as this is damaging the paintwork. This costs an additional £1,000.
The £2,000 paintwork is an improvement, so this can be included. The driveway improvements however were not made on the asset, so they can’t be included.
You might be wondering if there’s a difference between improvements and repairs – and there absolutely is!
If you repair something to its original state, you can’t deduct this, but you can with anything that adds value.
Sounds complicated? Imagine this! You’re looking to sell your second home so you make some changes throughout.Â
One of your changes is adding an extension at a cost of £10,000. This adds value to the property and counts as an improvement.Â
Another change includes repairs to damaged doors at a cost of £2000, but these don’t add any value to the property. This is a repair and can’t be deducted.
You might think your improvements are adding value, but will they still add value when it comes to selling your asset?
Any improvements will need to retain their value to be deductible.
Here’s a scenario! You own a rental property and your tenants request some essential improvements. This includes new flooring throughout.
However, when it comes to selling the property in 5 years’ time, the floors have worn away and need replacing again, so they haven’t retained their value. This wouldn’t count as an improvement.
If your asset ticks all three boxes above, then it counts as an improvement and can be deducted from your Capital Gain to calculate any CGT.
Sounds simple now, right?
Now that you’ve got to grips with improvements, you can calculate how much Capital Gains Tax you’ll need to pay.
We’ve made this super easy using our CGT calculator. Give it a whirl!
The total capital gains tax (CGT) you owe depends on two things:
Your overall earnings determine how much of your capital gains are taxed at – 10% or 20%.
Our capital gains tax rates guide explains this in more detail.
In your case where your capital gains from shares were £20,000 and your total annual earnings were £69,000:
You pay no CGT on the first £3,000 that you make
You pay £127 at 10% tax rate for the next £1,270 of your capital gains
You pay £3,146 at 20% tax rate on the remaining £15,730 of your capital gains
You need to save
to pay your £3,273.00 tax bill by 31/1/2026 which is in 666 days
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