cgt or trade?

cgt or trade?

Didn't find your answer?

bought property in say June 06, refurbished for six months, sold in sayJul 07, never let
but client may be able to prove intention that it was bought as buy to let but sold up prematurely to pay unexpectedly high tax bill - could this be a CGT transaction as opposed to prop dev trading?
nick farrow

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By carnmores
05th Dec 2008 20:19

profit presumed
its cgt to me no doubt! was any new trade registered

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By nick farrow
03rd Dec 2008 17:33

many thanks again Ken
for your authoritative & comprehensive input

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By kenmoody
03rd Dec 2008 15:09

The fact of there being other ...
buy to let property will obviously help the story to 'stack up', though the question of trading is one of fact and you can't convert a transaction which ticks a number of badges of trade into a non-trading transaction by simply saying it wasn't intended to be one! Intention is maybe a deciding factor if other factors are equivocal, which they seem to be. Using borrowed money may be indicative of trade i.e. if the property needs to be sold to repay borrowings then that would indicate a financial necessity to turn over the property in the short term. Further work done is an indication of trading and if it took six months (and presumably cost quite a bit) then it clearly wasn't a case of just a bit of painting and decorating. The cost of the property and the amounts spent on refurbishment, and the nature of the work, may also be indicative. These days you have to meet various regulations to let property. I wonder how far they had gone down the letting route, as evidence of an intention to let.

If the wife is not involved with the company, the joint ownership may be slightly helpful.

The answer is to 'suck it and see' I would guess & build up as much of a case as possible in case it's challenged. If the clients want 'closure' you'd have to disclose the treatment as additional information, which obviously flags up the issue.

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By nick farrow
03rd Dec 2008 11:04

thanks Ken
thanks for chipping in Ken - so far I have only warned client that the disposal may be construed as trading and evidence may be required of intention

The property was purchased by wife and husband in their personal names at same time as other buy to let property which remains let. The wife is not involved in husband's company either as shareholder nor director.

the overdrawn DLA was not directly connected to the buy to let business - he had not been warned by previous accoutant of repercussions of overdrawing DLA

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By kenmoody
03rd Dec 2008 09:51

The plot thickens
I am sure this is not the intention but it almost sounds as if you are putting words in the client's mouth. What were the intentions? It's for him to come up with the answer not for you to suggest plausible reasons.

The fact that the company is a building company is significant and is a pointer to trading - he's already in that line of business. Having said that even a building company can develop property for the purposes of letting without being liable to Case I on the 'trading' profit provided the asset was earmarked and treated as a fixed asset from the word go and the evidence backs this up. It's a question of fact and basically the facts need to be established, adducing whatever hard evidence is available.

S419 tax is the company's liability, but arises because of an overdrawn director's loan account. So you are saying he needed to raise money to put into the company - for whatever reason - to which he owes money so will reduce his loan account. Something not quite making sense here. Is the overdrawn balance anything to do with the property? In whose name was the property actually bought? I think there a few further facts which would be relevant which haven't come out so far.

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By nick farrow
02nd Dec 2008 15:38

thanks Pete
he has a building company (supply & fit kitchens & bathrooms) - the tax was ct & s419

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By User deleted
02nd Dec 2008 15:20

Business
If the cleiant had an expectedly high tax bill, what business was he in, this may influence the CGT/IT situation. Regards Peter

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By nick farrow
02nd Dec 2008 14:55

thanks Nicholas
it was the only cgt transaction

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By carnmores
02nd Dec 2008 11:19

either way
was this the sole transaction if so CGT is entirely possible and probable?

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By nick farrow
02nd Dec 2008 10:57

thanks MM & Dg
invt./cgt treating preferable in this instance as double AE overrides relatively low interest costs and other revenue exps

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By AnonymousUser
01st Dec 2008 21:27

Yup
intention, intention,intention

that's all that matters

proving it is another matter

ps what is CGT?

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By User deleted
01st Dec 2008 20:49

Sounds like trading
It sounds like trading, based on the very brief details, and that may be preferable to investment, especially if any loan interest was paid.

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