Hello,
In 2004, my client was given a lock up garage by his mum as a gift. He sold it in 2012/13 for £34k. When calculationg the Capital Gain, should I use Nil as the purchase price or can I use the 2004 market value of the garage?
Thanks in advance for any answers.
BD
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Yes it's the 2004 market value, or in other words what the mother declared as such on her return at the time.
I've just been reading up some more. Am I correct in thinking that the mother may have had a Capital Gain when she gave it to her son, based on the market value of the garage at that time and what she originally paid for it?
If so and, as I suspect, she didn't file a tax return back then, any advice on how best to deal with this now would be much appreciated.
Thanks
BD
Yes of course that's right.
Yes of course that's right. Why don't you just ask or a copy of her tax return for the relevant year first? That way nobody on here wastes time offering guidance on how to deal with her failure to declare a gain until we know that she didn't.
Thanks for your help; I didn't mean to waste anybody's time, I thought this was a forum for discussion, and I've certainly seen some on here, but now realise that's in a seperate area.
I have just asked her son to find out if she did file a return at the time, I'll come back when I have that answer.
Thanks again,
BD
I now have more information. The garage was part of parents' home and when the house was sold in 2004 (without the garage), the garage was transferred to the son. No tax return was filed, because the house and garage disposed of were the parents' only residence. Were they correct not to file a return?
And no valuation was done in 2004, which brings me back to this: what market value should I use as the cost of acquiring the garage when calculating the Capital Gain on the sale in 2012/13?
BD
2004
Use market value date of transfer.No need for mum to have completed a tax return in the circumstances.
To get to Market Value Go into Ourproperty uk and find house prices in the post code in 2004.
Depending on area there may not be much change.
If it appears that there will be a significant CGT liability, I would suggest that a Valuation is obtained from a professional Valuer.
Thanks to all for the helpful advice. I'm not sure how easy it would be to get a 2004 valuation done on a garage that my client doesn't own any more. By 31st January!
It was sold last year for £34k. If I use historical property price rises in the area to calculate backwards, do you think that would be accepted by HMRC as a reasonable basis of valuation?
Probably not - though it
Probably not - though it might be a reasonable basis for an estimate.
Is the client intending making a payment to avoid interest?
I'm not sure I understand that. He intends paying whatever CGT is due next week.
On the market value estimate - can I use that and make a note on his tax return? I take your point about getting a professional valuation of the garage, but do you think that's possible after 10 years and perhaps without access to the property?
Let client decide
@brendonohue Use an appropriate index (search internet) to arrive at the 2004 value using the sale date and value as the basis. Compute the resulting gain and calculate the tax. Explain to the client that he could use this with an appropriate white space note or instruct a professional valuer (valuers carry out historic valuations all the time - it does not matter if they do not have access to the property). If the client does not want to run to the expense of a professional valuation, he does not have to but the Revenue are more likely to accept the figure used in the return if it is professionally supported. So if the client is happy to use an indexing method just warn the client that he could end up with additional tax, interest and penalties (this could happen even if there is a professional valuation). In other words give the client the choice and await his instructions.
By the way, did you previously advise him that he could have obtained a post transaction valuation check (it is too late now) as this would have avoided this problem?
If the client lives nearby has he used the garage as part of his private residence?
Like a lot of clients, he brought this scenario to me as a fait accompli when giving me his self-employed accounts so I didn't give him any advice. Just as well - as you can tell, CGT is not something I know much about!
I will point out to client that an estimate may not be accepted by HMRC and the possible consequences of that and see if he wants to get a valuation done, although you say that may not be accepted anyway.
He was using the garage while renting a house nearby until he sold it to raise the deposit for his first house purchase. Do you think he could avoid CGT altogether as the garage was being used as part of his private (rented) residence?
31st January
If you are given very late information such as this you shouldn't expect to have to reach a conclusion by 31st January.
Either put in estimates with a view to filing an amended return later or file late and when you have the answers.
No relief
The disposal has to be the disposal of a dwelling house or part of a dwelling house that has been used as the private residence. If the garage had been used with a nearby residence that had been sold at the same time, then there may have been relief. If it had been used as a business asset there may be entrepreneurs' relief if it was sold at the time the business was sold.
Final Score
The outcome is that my client is going to seek a professional valuation this week and hopefully will have it before 31st. Otherwise, I will file an estimated tax return and an amendment afterwards.
Thanks again to all who have helped me on this one.
BD
There may be nothing to declare
If I use the Nationwide house increase calculator
http://www.nationwide.co.uk/hpi/calculator/calculator.htm
then the market value in 2004 could be (ignoring any factors which might have affected the value) around £29k.
The gain would therefore be about £5k which is well below the CGT annual threshold £10,600 for 2012/13. The proceeds are below 4 times £10,600.
So assuming that there are no other capital gains in 2012/13, there could well be no need to disclose this.
As the client is getting a professional valuation anyway, it's best to confirm this but I thought I would point this out.
i suggest that
you tell your client inwriting the worse case senario. Ie the max tax that could be payable.
This will protect you if he decides not to make a payment on account.
Pass on this aspect of the work
Having read the comments and your own admission that CGT is not your strong pointg it might be idea to approach an accountant near you to whom you could could sub-contract this work - with your client's approval of course as they would have to pay the fees. Getting this wrong could be expensive for you and your client! Just a thought. Regarding the January deadline a late filing fine might be the low cost low risk option. :-)
Who sold the garage for him?
I have often asked the agent selling for an informal valuation for estimate purposes. They usually have a good idea of the area and prices at the time. Tell him if necessary you will need to appoint him at a later date f HMRC ask questions. They are usually more than happy to help, especially when could get later business too. and it is much quicker than a frmal approach.
Thanks again for all the sound advice.
I had found through a couple of property indices that property prices in his area had hardly changed since 2004 but, in view of some of the advice I've had here, was wary of using that as a basis for calculating his CGT which would have been Nil.
He's now getting the valuation done, it will be completed before 31st, and I will use the figure that comes out of that. Hopefully that will be favourable to my client, I've done my job, learning a lot about CGT along the way, and everybody's happy.