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My client purchased a 100-year lease on a residential property in the early 1980s. This cost £20,000, but the property was in a dire state and hardly habitable. In the first year or so she spent approximately £40,000 on capital improvements to bring the house up to standard and it was then let out until it was sold in 2007-08 for £125,000, with about 75 years of the lease remaining.
HMRC now tell me that although tax relief can be claimed for associated legal expenses, there is no capital gains tax relief for the £40,000 improvements because it is a lease that is being disposed of, not a property.
I have not heard this argument before and am having some difficulty believing it. Are HMRC correct?
Advice from Taxation readers on this subject and how I go about persuading HMRC that their view is wrong would be gratefully received.
Query 17,285
