CGT Calculation query

CGT Calculation query

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A client owns 50 acres of land costing him £100000 back in January 2004. It is not used in a business.

He has been offered £35000 for 10 acres now but has been advised the market value of the whole lot could be around £200000 .

When doing the CGT calculation do you take proceeds as £35000 or 10/50 x market value of £200000.?

Also assume that this would be non business asset.

Thank you for any help.

david

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By AnonymousUser
25th May 2007 14:15

Proceeds are proceeds
Unless it is a transaction other than at arm's length, proceeds are proceeds. You then need to do the calc to arrive at the base cost to be allowed, and these have been given.

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By AnonymousUser
25th May 2007 08:55

MV or proceeds ...
All CGT is calculated using market value as the proceeds. However, where the disposal is by way of an arm's length transaction between unconnected persons, HMRC will normally accept that the actual consideration is a fair market value. So, assuming that the offer is from an unconnected person in a bargain at arm's length, and the transaction is chargeable to CGT, then £35K would be the sales proceeds to take into account. Assuming you do not go down the separable cost route (as mentioned by Dunedin) the cost of the parcel of land would be
£100K x (£35K/(£35K + £x)) where £x is the value of the remaining land, which may or may not be the same as £165K (£200K less £35K).

I don't think that this is quite the same as suggested by Dunedin, so I am a bit reticent to post as I am commonly wrong.

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By User deleted
24th May 2007 11:24

Part disposal options
Assuming that a charge to capital gains tax is appropriate, the statutory basis of calculation of the gain would be on a part disposal basis. Accordingly you would compare the sale proceeds of £350,000 with £350,000/ (£350,000 plus £2,000,000) times the cost of £1,000,000.

You can choose to use as the cost an estimate of the part of the £1,000,000 total that relates to the 10 acres being sold, presumably 10/50.This would depend on whether the land was of equal value.

The following is a link to a summary of these rules-
http://www.chiene.co.uk/pdf/partdispland.pdf

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