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Allowable costs against Capital Gain

What costs are allowed for Capital Gains when part funded externally?

Father (F) decided to convert  former commercial property into several individual properties.   He decided that one of these would be given to his son (S).

The original proposal was that this would be gifted before any work commenced.   The capital gain on F would be the pre-conversion value less original cost, and both sums were duly calculated.  The gain would be reasonably modest.  The costs of conversion of this property would then all be funded by S.

For practical purposes the conversion of all dwellings had to take place simultaneously.  Unfortunately some legal complications arose causing substantial del;ays in the property being transferred into the name of S.  The consequence is that when the property was eventually transferred to S the conversion had been completed.

Does this mean that the value gifted to S now becomes the open market value of the property which would, of course, include the 'profit' element of the conversion.   If that were so then the capital gain on F would be increased considerably.  

What do readers consider should be the disposal value for CGT purposes?  If the OMV value then is there any way the convcrsion costs paid by S can be taken into account, but if not is the benefit of those costs lost completely? 

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19th Apr 2018 21:23

I don't have access to my Tolleys right now, but off the top of my head, it could be worse.

If (F) made the conversions in the nature of trade (which it sounds like he may have), it could potentially be subject to income tax, and not CGT.

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By Ruddles
to SteLacca
19th Apr 2018 21:28

Best bet will be to argue that son’s expenditure was incurred on behalf of his father.

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20th Apr 2018 10:40

This seems somewhat confused.
1] When did the father's "gift" become legally binding- is there evidence of the gift being made earlier?

2]On what terms did the son provide the finance?

This feels more like a commercial arrangement between father and son-in consideration of the son providing money[? gift /loan] father would transfer completed unit to son.
That is not the answer being sought, I know !

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23rd Apr 2018 11:16

The relevant date is the date of gift of beneficial ownership of the property. This is not necessarily the same date the legal title was transferred into the son's name.

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