Tax on property conversion

Tax on property conversion

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Client has owned and operated a public house for many years. It closed last year and now he is converting it to flats to sell.

Client thinks he should be subject to CGT. However I wonder if the gain needs to be split, meaning there is a valuation of the property now, which is then subject to CGT with the excess being subject to income tax from a trade.

I'd be grateful for your views.

Replies (3)

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By MBK
11th Nov 2015 13:26

You are exactly right - sort of

On the date he decided to convert and sell he commenced a trade of property development.

That means the pub should then be transferred from fixed assets to trading stock at its then OMV. He has a choice then. He can either:-

1: Pay the CGT arising on that transfer, and the cost for the development activity will be the OMV at which it was transferred: or

2: Elect to transfer to trading stock at original cost - so that no CGT is payable at all and the trading profit is calculated by reference to his original cost.

Usually option 1 will be better, but t does depend upon circumstances.

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By awoodj
11th Nov 2015 14:06

VAT

If converting from Commercial to Residential some vat planning and deciding if the property is best moved into an SPV company might be sensible before too late. Could be expensive if he ended up pay vat on all the works when they did not need to.

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By alltaxedout
11th Nov 2015 15:04


They are two excellent responses. Many thanks. It was the VAT aspect that kicked the whole thing off!

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