CGT. No receipts for incurred costs

[HAL9000]

Hi

My wife and I received a house from my parents when we got married 30 years ago. It was attached to a small farm which was also signed over to us at that time. My parents continued to live in it until their deaths, my wife and I never used it as our primary residence. Our daughter is getting married at the end of this year and we would now like to sign the house over to her on her marriage. She has lived in it forthe past four years and pays us rent.
I know we will be liable to CGT. But over the years we have made various inprovements to the house such as installing central heating, dry lining, replacing windows and various other jobs. However we did not keep receipts for most of this work, much of which we did when my parents lived lived in it. I would like to know if, in the absence of receipts, ther is any way we can claim these costs against CGT.

 

[tricktricky]

Im afraid apart from indexing you house unless you have reciepts for upgrading over the years they cannot be taken into account, if you spent a minor amount of money it might be different but considering the fact that you made substantial improvements unless uyou have reciepts they wouldnt be allowed, if you have bank transactions to the suppliers possibly you could prove that the changes to the house were made.

In my opinion I think you would find it quite hard.

 

[mandelbrot]

I'd be of the opinion that if you could clearly show that the work was done (i.e. before and after photographic evidence), and that on the balance of probabilities you paid for it, you would have to be allowed some deduction for it, based on a REASONABLE estimate.

If your return is audited and you could in some way stand over the figures claimed (particularly if it was work carried out 15+ years ago that you couldn't reasonably be expected to have kept receipts for) then I very much doubt an Inspector would disallow the whole lot, unless they thought you were taking the proverbial with the amounts claimed...

 

[HAL9000]

Thanks for your replies tricktricky and mandelbrot.

It might be possible to trawl back on cheques etc, but not sure how long banks hold this information and in any event can't even pinpoint the years some of the work was done.
That the work was actually done can be shown by current photographs or physical inspection, but there are no photographs of the pre work condition. The house itself is a very old rural cottage, 100 years+ at least, so work carried out over the period of our owenership is fairly obvious. I was wondering if an engineers report and estimated value / cost of the improvements would be of any use.

 

[mandelbrot]

Thanks for your replies tricktricky and mandelbrot.

It might be possible to trawl back on cheques etc, but not sure how long banks hold this information and in any event can't even pinpoint the years some of the work was done.
That the work was actually done can be shown by current photographs or physical inspection, but there are no photographs of the pre work condition. The house itself is a very old rural cottage, 100 years+ at least, so work carried out over the period of our owenership is fairly obvious. I was wondering if an engineers report and estimated value / cost of the improvements would be of any use.

I think you may have missed my point slightly - I was suggesting you just make reasonable estimates from your memory, as to the rough dates & amounts spent, and do your CGT calculation accordingly, or sit down with your accountant and do it. If you have photographic proof handy, all the better. I wouldn't be going to the further expense of engineers report etc., or paying the bank exorbitant fees to give you bank statements back to the year dot - as long as you would be able to show some kind of valid basis for the amounts claimed it's extremely unlikely you'd have a problem.

I think you may not fully understand exactly what information you need to give in relation to the transfer to your daughter; you aren't required to state how much enhancement expenditure you're adding to the base cost - your CGT return simply states the amount of consideration (or the market value in your case as its a disposal to a family member), and the amount of taxable gain.

It is only in the event that Revenue raise a query, which may or may not happen, that you would be getting into the area of having to show the costs you've deducted...

You also have the option to tick the box marked "Expression of Doubt" on the return (either Form 11 or CG1), which would mean that in the event of Revenue disputing your return and your CGT liability increasing, no penalty would apply. This would probably increase the likelihood of your return being examined, but as I keep saying, as long as your claim is reasonable then I don't see why this would be a problem.

At the end of the day, the kind of work you've described would only be a fairly small amount relative to the present-day value of a house, e.g. £10,000 spent in the early 80's indexes up to €25k-€30k at most. I assume the house is worth at least €125k, possibly substantially more, so it's not a huge claim relative to the value of the house.

The biggest issue for you in this case IMO is determining how much the house was worth when it was signed over to you. Given that you are saying you had to spend all that money to make it comfortably habitable, it may not have been worth all that much at the time you received it. So, essentially it's all an exercise of swings and roundabouts, the less it was worth in (say) 1980 then the more you could justify having spent on it, and vice versa...

 

[Gekko]

I wouldn't recommend ticking the expression of doubt box. Be reasonable in your assumptions and Revenue should accept your conclusions in the event that they do query the transaction.

 

[HAL9000]

The biggest issue for you in this case IMO is determining how much the house was worth when it was signed over to you. Given that you are saying you had to spend all that money to make it comfortably habitable, it may not have been worth all that much at the time you received it. So, essentially it's all an exercise of swings and roundabouts, the less it was worth in (say) 1980 then the more you could justify having spent on it, and vice versa...[/QUOTE]


Thanks mandelbrot, I think this is a very good point.
If revenue did not accept that the work was done after the house came into our ownwership, then, logically, given that the house actually has central heating, replacement windows etc, the implication must be that the house was more valuable when it was signed over to us.
I have estimated the actual value when signed over to us in 1981 as being in the order of €20000 - €25000. Without reference to indexation, at least €10000- €15000 must have been spent on improving the property over the last 30 years. So if I put the original value as being €35000 approx. and forget about all the details of incurred costs, that would appear to be a reasonable solution. After all, revenue will still get about the same amount of CGT, even if how the gain is calculated is not in full accordance with the actual details.
Would be interested to know if anyone sees any problems with this approach.

 

[HAL9000]

Apologies.

First part of my last post was an attempt to quote from mandelbrots very helpful earlier one. Obviously I did not get the method quite right !!

 

[mandelbrot]

Thanks mandelbrot, I think this is a very good point.
If revenue did not accept that the work was done after the house came into our ownwership, then, logically, given that the house actually has central heating, replacement windows etc, the implication must be that the house was more valuable when it was signed over to us.
I have estimated the actual value when signed over to us in 1981 as being in the order of €20000 - €25000. Without reference to indexation, at least €10000- €15000 must have been spent on improving the property over the last 30 years. So if I put the original value as being €35000 approx. and forget about all the details of incurred costs, that would appear to be a reasonable solution. After all, revenue will still get about the same amount of CGT, even if how the gain is calculated is not in full accordance with the actual details.
Would be interested to know if anyone sees any problems with this approach.

That seems like the most practical, time- and effort-efficient way to do the thing. I don't see how you could have any problems realistically, apart from having your valuations challenged (you should tick the 3 boxes that indicate the acquisition and disposal were from / to connected parties, and that market value has been substituted for cost of acquisition).

As Gekko said previously, you may be better off not indicating an expression of doubt, as you have no doubt that your figures are a reasonable estimate of things based on the best information available to you.

 

[Bronte]

For the sake of not getting into trouble I think the relatively small cost of advice from an accountant would be well warranted. And revenue are the biggest trouble you are ever likely to meet. You could try McGibney or one of the other accountants on here.

 

[mandelbrot]

For the sake of not getting into trouble I think the relatively small cost of advice from an accountant would be well warranted. And revenue are the biggest trouble you are ever likely to meet. You could try McGibney or one of the other accountants on here.

Oops, and thank you Bronte, I didn't realise I hadn't advised the OP of that originally, as is standard for these kinds of thread!

So, yes OP definitely at least sit down with your accountant if you have one, or with an accountant who is recommended to you; for the sake of maybe a couple of hundred quid you would have much greater peace of mind (and the couple of hundred quid is also deductible as acost of the disposal!)