Readers’ forum: Do extensive works fall within TCGA 1992, s 38?

Our client acquired a coastal property in England for £950 000 in 2017 with the intention of re-locating from London. They re-mortgaged their London property to assist with the purchase. They sought and obtained planning permission for extensive alterations to the coastal property and completed works costing £500 000 in 2019.

For personal reasons our client retained their London property and decided to run the coastal property as a furnished holiday let and advertised it for one year on a rental portal. The letting business was not profitable exacerbated by the Covid 19 pandemic. Our client decided to sell the property which was agreed for sale in 2021 at £1.8m – a gain of some £350 000 on the total outlay or almost a 100% gain on the original cost of the property.

Our client self-assessed the capital gain however HMRC is disallowing almost...