Capital loss on repossession...
Good afternoon all,
A client of mine had one of his properties repossessed by his lender and I'm trying to assess the gains tax position.
The property in question was acquired at a cost of, say, £500k by way of a 100% mortgage, but its value fell massively to the extent my client decided to hand the deeds over to his lender and effectively suffer a repossession.
Prima facie, my client paid £500k for the property and got £0 for it - a £500k capital loss? My instict tells me not, as I doubt HMRC would allow my client a loss and then lender to write of a similar amount to its P&L.
S26(2) of TCGA seems to suggest that the lender stands in the shoes of the borrower and that whatever the lender achieves from the sale of the property would be deemed the borrower's consideration; this being the case, my client would still make a capital loss of some magnitude, albeit less than £500k; an allowable capital loss? Again, my instinct tells me not.
Any thoughts or comments would be gratefully received!
Thanks, A
That's pretty much my thinking...
Thanks Derek - that's pretty much my thinking too, that is the capitalised value of the loan relased forms part of the consideration, but I hadn't been able to satisfy myself that this is the case.
Best regards
Gain/Loss on sale by lender
Your client didn't receive nothing for the property, they had the loan written off.
Is it not the case that when the property is sold by the lending company to cover the debt a gain/loss will arise on the taxpayer.
The proceeds from the sale will reduce the loan with the balance being written off or still outstanding.
Try and think through the accounting entries for what has happened and the doubl eentry will guide you through the transactions.
Would it not be...
Would it not be a no gain/no loss, as the client has had a £500k debt written off as a form of consideration? Or am I missing something?