Tribunal Case – deductions from property gains
The first tier tribunal examined a taxpayer’s appeal to deduct certain expenses when computing a chargeable gain arising on disposal of a property.
The taxpayer had bought the property in London in 1976 and she had lived in it until 1985. The property was then rented as a furnished letting until 3 April 2006 before being ultimately sold on 1 September 2006.
In the taxpayer’s 2006-7 tax return a chargeable gain was properly disclosed by reference to that part of the gain that was not covered by exemptions. A claim was also made for expenses relating to the period between the time when the property had been vacated by the tenants and when the sale was completed. The expenses included water rates, council tax, electricity, gas, ground rent, telephone, service charges, insurance and furniture clearance. HMRC rejected the claim and the taxpayer appealed.
In addition the taxpayer also claimed as an allowable expense, her accountant’s fees in relation to dealing with HMRC in regard to the disputed claim.
The taxpayer argued that the expenditure in question did not have to be capital expenditure to qualify as a deduction since the property in question was not just bricks and mortar but a ‘machine’ and that the costs incurred were necessary to prepare the property for sale. The taxpayer also argued that the accountant’s fees should be allowable as an incidental cost of making the disposal.
The tribunal agreed with HMRC’s contention that the expenses did nothing to ‘change’ the asset and that the expenditure was not within the meaning of the relevant legislation (TCGA 1992, S38 (1)(b)).
The tribunal also found that the accountant’s fees were not allowable costs but rather related to expenditure in dealing with the taxpayers affairs consequent to the disposal of the property and in conducting a dispute with HMRC. The appeal was dismissed.