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CGT charge on sale of holiday lodge

CGT on sale of holiday lodge

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I have a client who has recently sold a holiday lodge they have owned for 13 years.  They have only ever used the lodge as a holdiay home for themselves and never rented it out.  It was never elected as their PPR.

They paid £100,000 for this and have sold it for £80,000 less a commission of £10,000 giving net proceeds of £70,000.

They had a licence/agreeement to use the lodge for 40 years.

My view is that tis is a wasting asset and so when calculating the capital loss arising I need to reduce the base cost of the lodge to reflect the diminution in value over the life of the asset.

My calculation would be £100,000 x 27/40 = £67,500 = base cost.  Therefore gain, before AE, would be £2,500.

Do members agree with my logic or have I missed something.

 

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16th Jul 2019 12:38

You could do with reading CG70700 through to about 71200.

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to Tax Dragon
16th Jul 2019 12:49

It does depend, does it not, on whether the asset was held under freehold or leasehold?

"they have owned" and "They had a licence/agreeement to use the lodge" seem slightly inconsistent to me.

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to Wilson Philips
16th Jul 2019 13:00

Surely that means that the first thing to be determined is what has been disposed of. It could be:

1) a freehold interest in land
2) a leasehold interest in land, or
3) a right over land.

Only 2 and 3 will waste, and there is then specific provision for how 2 will waste.

As ever, the key to obtaining a correct solution is to understand the problem.

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to Vile Nortin Naipaan
16th Jul 2019 13:10

To my (admittedly property-law ignorant... just ask Justin) mind, the fact that there are proceeds means that 2 is the most likely.

Irrespective of that, I think the OP should read the guidance I cited, TBH.

That said, there's no disputing your "as ever". As ever.

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to Tax Dragon
16th Jul 2019 14:53

I don’t see how the mere fact that there are proceeds makes one option more likely than any of the others.

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to Wilson Philips
16th Jul 2019 15:33

But couple that with the £10,000 charge by the site owners (OK, that was an assumption, but it's probably a good one) and it's perhaps indicative of what has been sold.

I accept it's not a slam-dunk. Nor is the fact that, for many of these hire-or-buy sites, the "buy" option means leasehold.

But I'd be surprised if I'm wrong.

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to Vile Nortin Naipaan
16th Jul 2019 14:53

Precisely what I was getting at.

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By Dowland
16th Jul 2019 15:56

Thank you to everyone for their comments.

I was aware of the treatment of leases and the slightly different way of adjusting the base cost.

I am not entirely certain of what my client "owned" and has disposed of so have asked to see as much paperwork as they have.

They say they owned the lodge but not the land and that they their ownership/licence continued for 40 years.

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to Dowland
16th Jul 2019 16:11

On those terms... I am preparing to be surprised.

Do you mind reporting back with your conclusions?

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By Dowland
17th Jul 2019 17:28

I have now had the opportunity to review what documenation my client has.
This is in the form of a Licence Agreement which specifies the term of the Agreement, being 40 years, and the Pitch Fees payable. It also mentions what will happen if the client sells the lodge (actually, it is a standard Caravan Agreement which has been adapted by the site owner) i.e. the purchaser will pay the site owner a commission to sign a new agreement.
The agreement is silent on the price paid for the lodge.
The client has mentoned that before the lodge was sold the Licence Agreement was extended, at no cost to them, by the site owner for a further 35 years.
My client has no other paperwork.
I am now somewhat confused as to what we my client owned and what they disposed of.
Any help would be appreciated.

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to Dowland
17th Jul 2019 18:06

What's being sold? Who owns what? The site owner obviously owns the land, and your client had the right to park his (or somebody else's) 5h1t on it for 40 years. Clearly he's now transferring that right and (one assumes) the 5h1t, but who owns the 5h1t? and how big is it (ie could it be considered tangible moveable property - tip: it's property and it's tangible)?

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to Vile Nortin Naipaan
17th Jul 2019 22:21

What's the difference between a transferable easement and a lease?

Especially if the thing owned that attaches to the land actually attaches to the land.... it's not a moveable caravan, it's a lodge sold using documentation borrowed from caravan transactions.

I don't doubt that the intention was not to grant a lease. I just wonder whether, nevertheless, one was, in law, created.

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By JoF
to Tax Dragon
17th Jul 2019 22:45

Many lodges are indeed moveable, so are then classed as caravans, are they not?

I wonder what the client thinks they have sold. Just the lodge? Is it feasible that a lodge purchased 13 years ago has only dropped in price by so little? I've no idea, last time I had anything to do with caravans and the like was 28 years ago so a we bit out of touch with such pricing.

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to JoF
17th Jul 2019 23:28

Can't be just the lodge. At least, not if that was the vendor's 5h1t parked on someone else's land, as Vile put it. What's the £10k for in that case? Perhaps the vendor should simply have removed his (or her) 5h1t and saved that charge.

But my understanding (limited as it is.... and based on asking Jeeves and his kith, rather than training or similar) is that licences (and other like rights over land) are personal and can't be transferred; easements can, if they provide an interest in the land.

Happy to be educated on this stuff though.

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By JoF
to Tax Dragon
17th Jul 2019 23:36

My thoughts were it couldn't just be the lodge, but I'm confused by the OPs commentary at 17.28.

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to JoF
17th Jul 2019 23:34

JoF wrote:

Many lodges are indeed moveable, so are then classed as caravans, are they not?

Oh and I don't know about moveable lodges either. I thought those were called static caravans. The holiday lodges near me are not like that.

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to Tax Dragon
18th Jul 2019 06:44

I've slept (sort of) in this last point. The (increased use of) prefabrication of buildings (or perhaps I mean structures in the nature of buildings)...

No, that's a thread in its own right. I think the key issue in this thread is the nature of the entitlement to (use) the land. Google now agrees with Jeeves and friends back then.

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to Tax Dragon
18th Jul 2019 11:07

Calling something a lodge, doesn't mean that it isn't a caravan. You appear to be embellishing the OP (and subsequent posts) with information that simply isn't there (your usual anathema).

We're sparce on facts, and it confuses the issue to just make them up or import them form other situations which may or may not be similar.

Also, I think that any right or interest can be transferred. It's just that some will require the consent of the person that granted the right or interest, while others will not (such consent being there or implicit in the right or interest).

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to Vile Nortin Naipaan
18th Jul 2019 11:32

Actually, I should have known that last point, as I now recall that my parents must have negotiated a transferrable easement when their house was extended right up to the boundary with the neighbours. The eaves on the extension occupied the neighbours' airspace. That ain't a lease - it presumably exists in perpetuity/until the extension falls down.

Property law remains a mystery to me (bit of a [***], in this job, sometimes!)

Here we (appear to) have a licence not an easement though, so I'll let myself off not making that parental link earlier (but, sorry mum, if you're looking!)

For the rest... fair comment.

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By Dowland
18th Jul 2019 11:43

The Licence Agreement enables the owner to sell their lodge/caravan. It states that the Buyer will have to enter into a New Agreement for a commission. It also stipulates that the site owner must be used to sell the lodge.

As far as I am aware the lodge is not movable and would not qualify as plant and machinery for capital allowances purposes, although I appreciate that some lodges do so qualify.

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to Dowland
18th Jul 2019 11:59

Dowland wrote:

It also stipulates that the site owner must be used to sell the lodge.

Is it reading too much into that to conclude that the lodge is, indeed, immoveable? If I owned the lodge and could tow it away, how could you tell me how to sell it?

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to Dowland
18th Jul 2019 12:26

How immoveable is it? Does it have foundations? Does it have it's own wheels? Could it be separated into sections and carted off on a lorry without causing damage to the surroundings?

It keeps simultaneously being referred to as a caravn and a lodge. It sounds very tangible, but we still don't have a tangible impression of it.

How much of the sale proceeds is attributable to the caravan/lodge itself? and how much is attributable to the right for it to be where it is?

To me, all these questions seem rather obvious, but no information that answers them seems to have been elicited.

Along the way it also became difficult to separate fact from fiction.

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to Vile Nortin Naipaan
18th Jul 2019 13:29

Vile Nortin Naipaan wrote:

How immoveable is it?

When you say "it", we don't yet know what "it" is, do we? Does the agreement bestow "ownership" of "the lodge" at all if the "owner" is not allowed to remove the lodge from the land?

Is the thing bestowed by the agreement either tangible or moveable? One of the very few facts we have established is that the agreement did not specify a price for the lodge, which seems a major omission in a contract for the sale of a lodge.

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By Dowland
18th Jul 2019 13:42

The Agreement I have, which is the only document my client can find at present, is called a Licence Agreement for a Holiday Caravan Pitch and other than stating what type of lodge will be parked on it does not mention anything further with regards to the lodge over and above what I have already set out.

As far as I am aware the lodge sits on a concrete base and is tethered to it in some way or another but I do not believe there are any foundations. It could, I suppose, be moved but there would be considerable effort in doing so.
As we do not seem to be getting anywhere with answering the question, which I accept is because I do not have all of the releveant information, I propose to end the thread here and thank everyone for their input.

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to Dowland
18th Jul 2019 13:55

You could have a look at the other document that your client surely has: the sale agreement.

Knowing what was sold might help you determine what was owned.

Just a thought.

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By JoF
to Dowland
18th Jul 2019 18:46

Dowland wrote:

The Agreement I have, which is the only document my client can find at present, is called a Licence Agreement for a Holiday Caravan Pitch and other than stating what type of lodge will be parked on it does not mention anything further with regards to the lodge over and above what I have already set out.

As far as I am aware the lodge sits on a concrete base and is tethered to it in some way or another but I do not believe there are any foundations. It could, I suppose, be moved but there would be considerable effort in doing so.
As we do not seem to be getting anywhere with answering the question, which I accept is because I do not have all of the releveant information, I propose to end the thread here and thank everyone for their input.

Sounds just like a large caravan. They sit on concrete bases, no foundations and are tethered to the base.

Tax D - such agreements are pretty common for so called static caravans. These agreements often carry a requirement to pay a fee for removing an old 'unit' and installing a new one (supposedly for 'renegotiating a contract' - read money making scheme). Also such owners are often 'done up like a kipper' if they want to sell to a third party they can be blocked by the site owner, or if they dont upgrade their van/lodge every x number of years and then find the van/lodge dumped unceremoniously at the side of the road when they dont play ball. Considerable effort is required, but amazing the number of times it happens to folk who havent read agreements and eventually fall out with site owners.

Anyway - that doesnt help with the Q at hand and Dowland has 'closed the thread' - just thought I would share that little gem with you.

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