Share this content
17

Capital Gain on sale of property

Unsure of which cost to use?!

Didn't find your answer?

So I have a client who originally bought a property with her brother. She then re-mortgaged and purchased her brothers share meaning she owned 100% of the property. She then started rented out the property and that is when she came to me as a client. She has now sold the property & I have to complete the Capital Gains calculation but I am unsure of which purchase price to use.... do I use her 50% of the original cost OR the remortgaged cost. Alternatively, do I use her 50% original cost PLUS the amount she paid to her brother. Any advice would be greatly received. I've looked over the internet but cannot find anything and this is the first time I have come across this situation.

 

Thanks in advance :)

Replies (17)

Please login or register to join the discussion.

RLI
By lionofludesch
13th Jan 2021 10:57

It's a nice mix of activity. Pest management and accountancy.

Unusual.

Thanks (0)
Replying to lionofludesch:
avatar
By DanaKilburn
13th Jan 2021 11:18

Very unusual mix isn't it! Let me explain, I worked in an accountancy practice for 10 years until I fell pregnant with my eldest child. Unable to go self employed (due to terms in a contract of employment) my loophole was to work through my Father's pest control company where may I state I am fully covered with professional indemnity insurance, AML supervision from HMRC and a registered member of the AAT. Hope this clears up any confusion.

Thanks (0)
avatar
By Rweaver
13th Jan 2021 11:00

The answer to the question is: none of the ‘options’ you give.

Stop trying to cuff it, and let a suitably qualified accountant do it.

Thanks (2)
Replying to Rweaver:
avatar
By DanaKilburn
13th Jan 2021 11:21

Well thanks for your very helpful answer! Just to confirm, I worked in an accountancy practice for 10 years. Took the AAT qualification & currently hold the fellow membership. It's just unfortunate that in my "experience" I have never come across this situation.
I actually thought the point of this website was for people to share assistance NOT judgment

Thanks (0)
Replying to DanaKilburn:
avatar
By Youareatit
13th Jan 2021 11:23

No experience of this situation. Dont forget your AAT ethics. Pass it on or buy in some expertise, so you dont make an expensive mistake.

Not passing judgement, just saying. Thats what AAT would say too.

Thanks (3)
avatar
By Youareatit
13th Jan 2021 11:22

Agree with Lion. Do you use the pest management side of the business to get rid of PITA clients? I might have to adopt that strategy, fabulous idea!

Thanks (0)
avatar
By DanaKilburn
13th Jan 2021 11:43

Well I'm starting to think posting on this site was a mistake.

Thanks (0)
Replying to DanaKilburn:
avatar
By Tax Dragon
13th Jan 2021 11:48

Don't be like that.

It's just that you don't sound expert at CGT and that's not a good place to start if you are advising someone about CGT. Genuinely.

Suggestion: outsource the work this time and look at the answer obtained.

Thanks (2)
Replying to Tax Dragon:
avatar
By DanaKilburn
13th Jan 2021 12:02

I agree, I am not expert on CGT. I've only had to complete one calculation in all my years. I just thought I would ask on here first, seeing as so many others ask genuine questions. I thought maybe I could learn something new seeing as I haven't crossed this situation before.

Unfortunately, my question raised more concern over how I go about my business rather than anybody giving genuine advice.

I think in this situation I am going to go with your suggestion & speak with somebody who has more knowledge & experience in CGT.

Thanks (0)
Replying to DanaKilburn:
avatar
By Tax Dragon
13th Jan 2021 12:16

Well, that was genuine advice, so I'm glad you are taking it. There may well be more to the tax situation than "what's the base cost?"

Thanks (0)
Replying to DanaKilburn:
avatar
By Youareatit
13th Jan 2021 16:39

DanaKilburn wrote:

''

Unfortunately, my question raised more concern over how I go about my business rather than anybody giving genuine advice.

I think in this situation I am going to go with your suggestion & speak with somebody who has more knowledge & experience in CGT.

''

WOW!! I gave you genuine advice at 11.23am, which TD followed up a while later with the same suggestion, yet you moan!

I do hope that you have told the AAT that you are trading through a limited company that has other director's etc/gained specific agreement to do such!!

Thanks (0)
Replying to Youareatit:
avatar
By DanaKilburn
13th Jan 2021 17:19

I can assure you I wasn't moaning simply stating a fact that people seemed more interested in how I go about my business.

And I can assure you I have spoken with the AAT and informed them of exactly how I am providing services to clients. I have also discussed it with HMRC and have AML supervision through them. I also pay for professional indemnity insurance. After my previous employer tried reporting me for not doing things correctly I provided everything requested from AAT and they have absolutely no issues with it. Thankyou for the concern though

Thanks (0)
avatar
By Tax Dragon
13th Jan 2021 12:28

One more free tip: residential property gains in 2020/21 are reportable within 30 days of disposal if there is tax to pay. 2019/20 gains are now reportable within 18 days. So... don't dillydally.

Thanks (0)
Replying to Tax Dragon:
avatar
By memyself-eye
13th Jan 2021 13:55

...but do follow the van.

Thanks (0)
Replying to memyself-eye:
Hallerud at Easter
By DJKL
13th Jan 2021 14:09

Lost me way and don't know where to roam, sounds on point.

For the OP, consider PPR if on point for part of ownership and apportioning the gain if so required, safer though to rope in someone else for this one, there are a fair few snares.

Thanks (1)
avatar
By whitevanman
13th Jan 2021 19:40

The answer to the questions you posed is that the first 50% is at cost whilst the second is at OMV (being a transfer between connected parties). The price actually paid is irrelevant.
That said, I agree 100% with the comments made by others. This is probably the easiest bit of the computation rules and you are clearly not familiar with it. There is little likelihood therefore, that you will be au faithful with the possible reliefs, which can be quite complex and the rules about returns and payments. Better to get advice from someone who does know and perhaps do a bit of reading, perhaps the HMRC manual on CG for a start.

Thanks (0)
Replying to whitevanman:
avatar
By DanaKilburn
13th Jan 2021 20:09

Thankyou for your advice. I had come to the conclusion that the base cost for the cgt calc would be 50% original cost and 50% MV at the time she took the property on herself. Having looked back at my original question I think I've not worded some parts correctly. I've completed a few cgt calcs in my time but always straight forward 50/50 or full ownership. Never had any with transfers. I am aware of the costs that can be deducted from proceeds and also aware of the PPR and lettings reliefs. I'm also aware of the changes to reporting and paying as of 6th April 2020. I am in no way an expert in cgt and appreciate there are complex rules etc. This situation just threw me slightly. Thanks again for your help:)

Thanks (0)
Share this content