CGT and part disposal

CGT and part disposal

Didn't find your answer?

Client wishes to sell property to tenant. Wants to sell a 50% share this tax year and 50% next to minimise CGT. Can the gain then be split equally to each tax year (assuming equal gain in each period). I don't think its effective for stamp duty.

In the case of the first 1/2 sale, will the Revenue accept that the value of the property is 2x what was paid for half of it, or will they seek to value the remaining half for CGT purposes themselves?

John
John Henderson

Replies (1)

Please login or register to join the discussion.

avatar
By jamesbailey
31st Oct 2005 12:35

Part Disposal pitfalls
Dear John

IF HMRC accept that there have been two disposals, one in each of the two tax years, you would use the "A over A plus B" part disposal formula to calculate the allowable expenditure on the first disposal - see CG12731 in HMRC's Capital Gains Manual for details. As far as the value of the second part ("B" in the formula) is concerned, this will be a question of fact - and in any event, the full base cost will get allowed between the two disposals.

I assume the tenant and your client are not connected persons as if they are, the disposal consideration will also be subject to adjustment to market value.

The problem is that it is likely that there will be a disposal of both halves in year 1, on the basis that your client will not want to sell the first half without some assurance that the tenant will buy the second half next year. This could mean that the sale contract for the second half is treated as made in year 1, even though it is not completed until year 2.

There may be ways round this, involving conditional contracts or options, but it's an area that needs great care.

Note also that there is a danger of stopping the taper relief "clock" for the second half if the arrangements are such that your client is no longer exposed to any risk of a fall in value (or able to benefit from an increase in value) of the second half of the property - see paragraph 10 of Schedule A1 TCGA 1992.

James Bailey
Chartered Tax Adviser
[email protected]

Thanks (0)