Landscaping has increased in popularity significantly since the pandemic. Not only does it enhance the aesthetic appeal of your home, but it also adds value to it. We talked about whether landscaping would increase the value of your property in our last blog; if you missed it, the answer is YES!
However, the costs associated with landscaping can be significant. Property developers and landlords are usually looking for ways to offset these costs. This is something that homeowners rarely consider, but something that is worth thinking about, especially if your current home isn’t your ‘forever’ home and you intend to sell at some point in the future.
A question that often arises is whether landscaping costs can be offset against capital gains tax. In this blog post, we explore this question in detail and provide insights for homeowners, property developers and landlords in the UK.
What is Capital Gains Tax?
It’s important to understand what capital gains tax is. Capital gains tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. Disposing of an asset also includes giving the asset away or exchanging it for something else. The amount of money you receive for the asset isn’t taxed; it’s the gain you make that is. Low Incomes Tax Reform Group (A voice for the unrepresented) explain this really well in one of their recent articles.
The amount of tax you pay depends on your income and the size of the gain. For individuals, the current CGT tax rate is 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers. For property developers and businesses, the CGT tax rate is 20%.
Can Landscaping costs be offset against CGT?
Now, let’s turn our attention to the question at hand. Can landscaping costs be offset against CGT? The answer depends on the nature of the work.
According to UK government guidance, certain costs associated with improving a property can be deducted when calculating your capital gain. This means some landscaping work may qualify as enhancement expenditure, provided it meets HMRC’s requirements. Generally, the expenditure must have been incurred to enhance the value of the property and the improvement must still be reflected in the property when it is sold.
However, this does not mean that all landscaping costs can be deducted. Routine garden maintenance and other ongoing costs will not generally qualify as improvement expenditure. Where landscaping does meet the relevant criteria, the qualifying cost may be taken into account when calculating the gain on the property, potentially reducing the amount of Capital Gains Tax due.
The tax treatment of landscaping will depend on the work carried out and individual circumstances, so homeowners, landlords and property developers should seek professional tax advice to determine which costs, if any, can be claimed.
It is also important to keep detailed records of any landscaping costs incurred, including receipts, invoices and other relevant documentation. If any of the work qualifies as allowable enhancement expenditure, these records can help substantiate the costs when calculating the capital gain on the property. As not all landscaping expenditure will qualify, it is advisable to seek professional tax advice before making a claim.
To learn more about the costs of landscaping, see our post The Ultimate Guide to Landscaping Costs in the UK in 2024.
Always seek professional advice
It’s worth noting that the rules around CGT can be complex, and it is always advisable to seek professional advice before making any decisions. According to the National Residential Landlords Association (NRLA), It’s essential for landlords to seek professional advice when it comes to capital gains tax. A qualified accountant or tax advisor can provide guidance on how best to manage CGT liabilities and ensure that all available options are explored.
In addition to seeking professional advice, it’s also important to stay up to date with any changes in the tax laws that may affect your CGT liability. The UK government regularly updates its guidelines on CGT, and it is important to be aware of any changes that may impact your situation.
At ALS we would always suggest that as a homeowner, property manager or landlord, you keep an eye on the rules and regulations around capital gains tax, as they can change from year to year.
Conclusion
As a homeowner, you’ve probably not factored in any consideration of CGT when deciding to have your garden landscaped. For landlords and property developers, CGT will certainly be on the radar, and while landscaping costs can’t be offset against CGT, there are strategies that can be employed to reduce the overall tax liability when the property is sold.
These include adding the cost of landscaping in the cost basis of the property and keeping detailed records of all landscaping costs incurred. However, it is important to seek professional advice and stay up to date with any changes in the tax laws that may impact your CGT liability.
If you’re thinking about having your garden landscaped in Lincoln, or you need any non-tax advice, get in touch with us today.