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Declaring formerly joint home to HMRC.
My ex and I (never married) bought a flat in London as joint tenants for £550,000. We bought the flat with a 95% mortgage. We separated in 2019 and he moved out at the end of 2019. I remained living in the flat and I bought him out in mid-2021. I only paid him approximately £8,500 to buy him out, plus some furniture (essentially, what he had paid towards the deposit/equity prior to us breaking up).
I lived in the flat until I moved to the US in 2023. I’m now looking to sell the flat. I don’t think I’ll get £550,000 for it, as it’s a small flat in London and I think we paid too much. However, I’m wondering if any CGT might be due in any event.
I don’t know if HMRC is looking at what we bought the place for together (£550,000) or what I bought his half share for (£8,500), or a combination of both or something else when determining capital gains. Any thoughts from readers would be very much appreciated.
Query 20,443 – Magenta.
How can I prove disposal without written document?
HMRC has raised an enquiry into my client’s capital gains tax position for 2022-23.
One of the disposals was of a minority holding in a company where the majority ‘did a deal’ and the minority were forced to sell under a ‘drag-along’ notice.
My client received a voluminous sale and purchase agreement (SPA), but none of the minority shareholders signed it, because they thought it might prejudice their rights in any legal action that they might take (but, in the event, never did). The officer carrying out the enquiry has asked several times for a signed and dated SPA, citing various references to the HMRC manuals in support of her right to see such a thing.
I have told her that it does not exist, and why, and provided the unsigned copy and an email from the company which says ‘the sale transaction has been completed’. I have also shown her the issue of the ‘waste paper’ that my client received in consideration, in accordance with the SPA.
Surely HMRC must accept that there can be a disposal without a signed SPA? How do I persuade the officer to accept that?
Query 20,444 – Unsigned.
Can input tax be claimed on costs paid for relocation.
One of my clients opened a new branch of his business in Manchester and his trusted office manager agreed to relocate from London to Manchester to oversee this exciting new project. In return, my client paid all of the employee’s removal costs, so he was not out of pocket.
HMRC has queried some of the input tax claimed on the costs paid by my client but accepted others. For example, the officer has accepted a claim on all legal fees and estate agent fees relevant to the manager selling and buying his old and new homes but disallowed input tax on the costs of a landscape gardener who carried out much-needed work on the front and back gardens of the new house. The officer has also disallowed 50% of the input tax on the cost of carpets at the new house because there is private and business use, although I am not sure of the logic here.
Should we ask HMRC for an internal review on these issues? Surely, the relevant issue is the fact that my client’s business paid for these expenses?
Query 20,445 – Relocator.
Is it possible to claim holdover relief where there is no gain?
I was interested to read in Malcolm Gunn and Fred Butler’s article ‘My claim for your tax bill’ (Taxation, 24 October 2024) that a claim should be for holdover relief where there is no gain. This was in the context of a gift to an individual of business assets where TCGA 1992, s 165 allows for the gain to be heldover. TCGA 1992, s 165(10) allows for any inheritance tax that is payable on the gift to be deducted from the capital gain on disposal of the asset by the recipient where a claim for holdover relief under s 165 has been made.
In this case this would be any inheritance tax due because the donor died within seven years of the gift. The article states: ‘There may be cases where no capital gain arises so no holdover claim is required.’
Extraordinarily, the best advice is that a claim should nevertheless be made. This will be completely pointless for CGT purposes because there is no gain. Section 165(1) provides that a claim can be made where there is a disposal and s 165(4) provides that the ‘chargeable gain which … would accrue to the transferor’ and the base cost for the donee are both reduced by ‘the held-over gain on the disposal’. Is it possible to claim holdover relief where there is no gain or where there is a loss? If so, what effect does s 165(4) have in such a case?
Query 20,446 – Xena.
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