A HM Revenue and Customs comparison on tax returns with Land registry data showed Tobias Ridpath bought and then sold two investment properties in the 2004-05 tax year.
These sales were undeclared on Mr Ridpath’s tax returns, so HMRC contacted him for details of the costs involved in the transactions.
Ridpath claimed he had spent £40,000 on improving the properties before the sales, but could not provide any receipts, copies of cheques or details of the work carried out to a First-Tier Tax Tribunal.
The tribunal rejected his claim that the expenses were improvements to the property that were much more than refurbishments and dismissed Ridpath’s appeal.
“We can see it is very likely he incurred some expenditure on the properties. The difficulty is that we have no idea how much was spent. We are invited to find that some or all of the bank withdrawals were used in this way. Ridpath was unable to point to a single item and explain by way of illustration how the money leaving his account had been spent,” reported the tribunal
HMRC had given him ample opportunity to provide evidence of expenditure. Indeed we can see that Ridpath was treated very tolerantly. We have no idea why Ridpath was so vague about the expenditure. It is impossible for us to conclude that he spent some reasonable figure on these works and then guess how much that is - or accept what seems to us equally to be guess work by Ridpath about the expenditure.”
Landlords claiming improvement costs are limited to claims for cash on items that add value to a property.
For instance, replacing a like-for-like kitchen is a repair not an improvement, while installing new heating or a loft conversion are improvements.
Landlords should photograph the improvement projects at the start and finish and keep all receipts relating to the job to file with any claim.
Improvement costs are deductible against capital gains – in Ridpath’s case, £40,000 of improvements would have reduced his capital gains tax bill by £11,200 if he was a higher rate taxpayer or £7,200 if he was a basic rate taxpayer. (Ignoring other allowances and reliefs)
Read the full judgment
