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What is the rate of capital gains tax on sale of land?
My clients’ father died about ten years ago leaving a run-down cottage to his three children. Since then, the cottage has been flattened and planning permission for two new residential properties has been obtained.
The children plan to sell the bare plot and have asked me whether CGT will be payable at the rates applicable to residential property, or the CGT rates applying to other disposals. (I am confident the transactions in land rules will not apply.)
My initial thought was that land is residential property if at any time in the relevant ownership period it consisted of or included a dwelling, so in this case the entire gain will be taxable at the residential CGT rates. However, I did some research and discovered TCGA 1992, Sch 1B paras 7 and 8 and HMRC’s manual CG73755, which states that a building is regarded as ceasing to exist when it has been demolished completely to ground level at any time before the completion of the disposal, provided the work has been carried out in accordance with any required planning permission and development consents. Therefore, it would seem that the overall gain can be time apportioned, with the period from the date the property became vacant prior to the demolition, to the date of sale, taxed at the non-residential CGT rates.
Do readers agree with this analysis? Will it make any difference if the permission granted for demolition was part of the same permission granted for the construction of the new houses? (I am concerned that in this case the demolition might be treated as part of the overall construction process for the new houses, thereby making the land a dwelling, because it’s a building ‘in the process of being constructed’ (Sch 1B para 5(1)(b)).
Query 20,295 – Homeless.
Who must carry out the farming activity to claim relief?
The deceased left assets which, at the death, were eligible for agricultural property relief (APR) and/or business property relief (BPR) to be held on discretionary trusts under the terms of the will.
The trustees have now owned the property for two years. In order that the trustees qualify for APR/BPR on a transfer, do they all need to carry out the farming/business activity or can only one of them carry out the farming?
Query 20,296 – Benjamin.
Buying a caravan for use as accommodation when working away.
We have a client who is the director and main shareholder of a small engineering systems consultancy company – including the director, it employs about six engineers who provide this service to their clients.
The provision of the company’s service will generally involve an engineer attending a client’s premises for perhaps up to a week a month, possibly slightly less, and as the clients are located all over the country, this will generally involve the engineer staying at a hotel, and the cost of that hotel will be a business expense, following normal principles.
Our query concerns the director who is a keen caravaner, and has asked what the tax implications would be if the company bought a caravan which, when the director was working away from home at a client’s premise, he would tow behind his car to a suitable location near the client’s premises and then stay in the caravan for those few days when he was working away from home at the client’s premise.
Other employees would be able to use the caravan while working away from home, though we would doubt any would.
If we assume the director uses it for a business purpose one week a month, with periodic weekend personal use, our questions are:
- Can the company reclaim any VAT incurred on the caravan’s purchase price?
- Is a claim for capital allowances in point?
- The running cost of the caravan would likely be minimal, but could corporation tax relief be claimed on them?
- How would the benefit-in-kind be calculated for the director’s personal use?
I am not sure this is relevant to the query but, although we understand it is possible for the caravan to be stored at the company’s premises when not in use, the director would prefer it stored at his own house simply for security reasons.
Any thoughts readers might have would be appreciated.
Query 20,297 – Daytripper.
Flat rate scheme dilemma.
My client trades as a bar and restaurant on single premises and uses the flat rate scheme; he joined it on 1 January 2012. As I understand it, he must review the accuracy of his relevant flat rate category on this date each year, based on turnover in the four quarters to December.
For the year ended 31 December 2023, the restaurant turnover exceeded the bar sales for the first time and I understand this means he must use the flat rate percentage for ‘catering’ rather than ‘pubs’ in the next 12 months. Is this correct? My client says that the blip in the restaurant sales was temporary because of some outside functions he did the food for and that bar sales will again exceed food sales in the coming 12 months because he has stopped doing outside functions. Does this make a difference?
He would obviously like to continue using the rate for pubs because it is much lower than the rate for catering services, and his view seems reasonable.
What do readers think?
Query 20,298 – Flattened.
