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Equity Release on Business Property V's Tax implications

Equity Release on Business Property V's Tax...

Hi

I have a client who has been running a bed & breakfast in her home for 50 years, she is looking to either sell her home and stop trading or stop trading and release some equity from the home.  The home has been her PPR for the whole duration, but i am not sure which is the best way to go about it for her.

She is 73 years old, her property has been valued at £250,000, the equity release team advised they would give her 40% of the value, but then added £7,000 as she takes heart tablets!!!!

My concern is looking at the most tax efficient way of doing things

option 1 - sell up and buy a smaller place - part of which will be liable to capital gains tax as part has been let out

option 2 - equity release - but not sure of the capital gains implications (if any)

She inherited the home from her mother.

Any advice would be greatly appreciated

Many Thanks

Andrea

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17th Jan 2013 17:52

You need to do the calculations

We cannot do them for you.

But Equity release is  pretty dodgy.

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18th Jan 2013 09:56

It's all about needs

Hi,

Equity release

It's wrong to say equity release isn't a good thing. It is simply a question of needs. For example, for a single 73 year old who has no dependants and is cash strapped equity release could be an ideal answer. Whether it poses good value for money is a different question, but it maybe Hobson's choice for someone in the situation I've descibed. Personally I'm not keen on equity release, but there are plenty of equity release schemes run by decent sized financial institutions with a good reputation. Just search the web to find these and check reports as to whether they have a good track record.

Options

There is more than one type of equity release, but they essentially fall into two categories:

lifetime mortgages; where you borrow against the property and the debt is repaid from your estate after deathHome reversion scheme - where you sell your home to the eqyuity release company and they grant you a lease for life.

The second type of equity release usually offers more cash up front.

Tax

In the first type of equity release the property is not sold therefore there are no CGT implications.

With the latter type of scheme there will be a sale of the property.The proceeds for CGT will be a combination of the cash received and the value of the lifetime lease. Having established this the CGT computation can follow normal rules; the value of the property would have to be apportioned between business and non-business use over the lifetime of ownership. The business element should attract ER subject to the usual rules.

TC 

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