One of the most common questions from property sellers is: "Can I deduct the money I spent doing up the property?" The answer is: sometimes. HMRC makes a clear distinction between capital improvements, which can be deducted from the gain, and repairs and maintenance, which cannot.
The rule: capital improvements, not revenue expenditure
For CGT purposes, you can add to your base cost the cost of any work that enhances the value of the property by adding something that was not there before, or that transforms the property into something materially different. This is called capital expenditure.
You cannot deduct the cost of work that simply restores or maintains the property in its existing condition. This is revenue expenditure — it is the cost of keeping the asset in its original state, not improving it.
What counts as an allowable improvement
Common examples of capital improvements that HMRC accepts as additions to the base cost:
- Extensions and conversions: adding a room, loft conversion, garage conversion to living space
- New bathrooms or kitchens installed where none existed before: or a complete replacement that goes significantly beyond a like-for-like swap
- Central heating installed for the first time
- Double glazing installed for the first time
- Landscaping and garden works: creating a new garden, installing a swimming pool, structural garden walls
- Rewiring or replumbing the entire property where the original installation has been completely replaced
The key test: does the expenditure add something to the property (capital), or does it maintain or restore what was already there (revenue)?
What does not qualify
- Redecorating — painting, wallpapering, flooring unless it is part of a larger capital project
- Repairs: fixing a leaking roof (but not replacing the entire roof structure), repairing windows
- Replacing like-for-like: a new boiler of equivalent specification, a replacement kitchen of similar quality to the one removed
- General maintenance costs: garden upkeep, cleaning
- Finance costs: mortgage interest is not an allowable CGT deduction
The line between repair and improvement is often blurred in practice. A kitchen replacement can be capital if the new kitchen is materially better than the old one (more units, granite worktops where there were none). A simple swap of units for equivalent units is more likely to be revenue.
The records problem
HMRC requires you to be able to evidence the improvement costs you claim. In practice, many property owners:
- Cannot find invoices from work done ten or fifteen years ago
- Paid tradespeople in cash and have no documentation
- Undertook the work themselves and cannot claim their own labour (only materials are deductible)
Without documentation, HMRC will not accept the claim. Estimates, memory, or your own assertion of what you spent are not sufficient. This is why keeping completion statements, building contracts, and invoices for improvement work throughout the period of ownership matters enormously.
Your own labour cannot be deducted
If you personally carried out renovation work — whether you are a builder by trade or not — the value of your time is not an allowable deduction. Only the cost of materials you purchased can be included. This is a common disappointment for people who have spent hundreds of hours renovating a property.
Improvement costs on a property that was partly your home
If the property was your main home for part of your ownership period and qualifies for partial Private Residence Relief, the improvement costs are still included in full in the base cost calculation before apportionment. The calculation is: gain (sale proceeds less full base cost including improvements) then apply the PRR fraction to that gain.
Staging and cosmetic work at point of sale
Costs incurred to prepare a property for sale — decluttering, painting, staging — are generally revenue in nature and not deductible as capital improvements. Estate agent fees and solicitor fees on sale, however, are deductible disposal costs.
Getting the base cost right before you file
Underestimating allowable improvements means overpaying CGT. Overstating them means the return is wrong and could attract a penalty. Getting the calculation right requires going through all the expenditure during ownership — ideally with your original completion statement, a schedule of improvements, and the invoices to support them.
If you want help working through the base cost calculation and identifying what qualifies, a Chartered Accountant/Chartered Tax Advisor can review the expenditure schedule before you file the 60-day return.