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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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.
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.
Business
If the cleiant had an expectedly high tax bill, what business was he in, this may influence the CGT/IT situation. Regards Peter
Yup
intention, intention,intention
that's all that matters
proving it is another matter
ps what is CGT?
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.