BTL property with a plot of land at the back

BTL property with a plot of land at the back

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I have a client who purchased a property for rentals with half a mind on development value at the rear.

Planning has been obtained and we are looking at the options, in particular transfer into a limited company for the plot for development and sale. 

 I was also going to explore treating the development and sale on as a trading income too. 

If we were dealing with a limited company it is quite straight forward transfer in at market value using the a/a+b formula for the cost to compute the gain. 

But with a sole trader, this would presumably be an appropriation of stock which is getting a little exotic for my tastes.

My understanding is that you compute as if for a capital gain, but the "gain" may be rolled over so the "opening stock" figure becomes effectively the cost of the land.

However can you vary the hold over so as to use the owner's CGT allowance?  I have two available as it is jointly owned. 

And in a practical sense do you just include this on the tax return, or is a separate election required?

Finally, from a timing point of view this would presumably be "when trading commenced"

To my mind trading must commence when the client decides to build and not sell the plot on.  So this could be as late as getting quote from the builders, or as early as the day he bought the land. 

I cant think the timing of splitting the deeds will make much difference but this might happen soon, before building commences. 

Lots of questions, so a summary:  

Q1:  Have I got this right about appropriation, and the ability to 'roll over' the gain?

Q2 Can we use the clients personal CGT allowance in this period to increase the land value?

Q3. Form of election via tax return?

Q4. Would splitting the deeds make any difference on the commencement of the trading activity?

Replies (2)

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Nichola Ross Martin
By Nichola Ross Martin
22nd Oct 2014 11:25

Lots of questions!

Different ways to skin this cat, but the property is not at this moment "stock" in the sole trade. There are a number of issues on timing of the different elements such as splitting the deeds etc and the effect on valuation. At present you have a rental business and a potential to develop, so you can incorporate all or part of that and claim relief depending on which route you take. You elect if you need to on a tax return and depending on the form of relief you go for in either crystalising a gain or a part of a gain now, or hold over the whole business and defer the gain.

It needs to be properly considered looking at the numbers, I can work it through for you, but I would charge for me time, you can contact me for a quote if that idea appeals to you: 

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By pauljohnston
22nd Oct 2014 11:37

This is a complex subject

I suggest that you take up Nichola's offer or use someonelse who has the relevant experience

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