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Reducing chargeable gains on the sale of a freehold property.
My client purchased freehold land and buildings some years ago for use in his trade.
He is now selling and will realise a capital gain. He has some qualifying expenditure to roll the gain into but not enough to shelter the whole gain.
It has been suggested that as the real increase in value over the years has been largely on the land rather than the buildings I can treat the land and buildings separately.
For example, using illustrative figures:
One asset
Land and buildings proceeds: £800,000
Cost: £400,000
Gain: £400,000
Proceeds reinvested: £500,000
Proceeds not reinvested: £300,000
The £300,000 is immediately charged.
Two assets
Land proceeds: £500,000
Cost: £200,000
Gain: £300,000
Proceeds all reinvested so gain rolled over in full.
Buildings proceeds: £300,000
Cost: £200,000
Gain: £100,000
No proceeds reinvested so gain is immediately chargeable.
Therefore, splitting the land and buildings means that the immediately chargeable gains are reduced from £300,000 to £100,000.
To be totally honest, I have not taken this approach before so I would be grateful for readers’ confirmation that this is the way that the rules work. Has anybody actually had CGT computations agreed with by HMRC on this basis?
Query 20,283 – Curious.
Taxation of UK trading profits while resident abroad.
My client, a Mexican citizen, currently lives in the UK. He is employed full time and has a work visa.
On top of his day job, he decided to trade in the UK stock market and he started seeing some healthy revenues. He has now decided to quit his job and return to Mexico permanently. He wishes to retain his UK bank account, however, to receive the UK pension he has accumulated over the years.
He also wishes to continue trading on the UK stock market from Mexico and would prefer to do this using his UK bank account.
I am unclear as to how the profits from his UK trading should be taxed while he is a Mexican citizen residing in that country.
Could Taxation readers shed some light on this query?
Query 20,284 – Chipotle.
Will relief be available on the sale of business premises?
I am trying to get my head around the associated disposal rules for business asset disposal relief (BADR).
My clients, Tom and Jerry (not their real names), were in partnership in many years in a architects’ practice. They had a 50-50 interest in the partnership but the business operated from freehold premises which were owned personally by Tom and for which the partnership paid rent.
The practice was sold 18 months ago but Tom continued to own the premises and the new owners of the business paid him rent for the use.
The new owners have said that they would like to buy the premises from him. Assuming that this takes place within the next six months, will Tom be able to obtain BADR on the disposal of the property as an associated disposal?
If so will there be a restriction for: (a) the fact that rent was received both before and after the sale of the business; and (b) in the last two years of ownership of the property it was being used in a business which was no longer owned by Tom?
I’m finding it difficult to find a way though the complexities of the legislation and I would be very pleased if any more experienced readers could point me towards the right answer.
Query 20,285 – Middle man.
Is there VAT on land sale bonus?
One of my farmer clients sold a parcel of land in 2005; the proceeds were exempt from VAT because there was no option to tax election in place on the site.
In 2021, the client made an election with HMRC to tax other parcels of land with HMRC but – by mistake – included the land on the form VAT1614A which was sold 16 years earlier. In most cases, this would not be an issue but my client has unexpectedly received a bonus payment of £20,000 this month from the developer who purchased the land in 2005. The payment is linked to profit margins achieved by the developer which has entitled my client to this extra windfall.
My question is: should we ask the developer for VAT of £4,000 because of the 2021 election or can we say that the £20,000 relates to extra money for an exempt sale made in 2005 and therefore no VAT is payable on this receipt?
Query 20,286 – Giles.
