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CGT on land sale

Within 60 day reporting requirement or not?

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A residential letting property was totally destroyed by fire in 2018.  After a great deal of negotiation the insurance company agreed a figure to rebuild but this proved significantly lower than the actual cost quoted to such a degree that it was not feasible to rebuild it.
Another round of negotiating with the insurance company eventually led to a settlement which was not made until the 2021/22 tax year.  Subsequently the land on which the  ow destroyed property stood was sold in November 2022 leaving the taxpayer to meet the costs from scaffolding etc that had already been incurred.  The property could not be lived in as it had been completely gutted by the fire and very little of it remained.

It looks as though the compensation for the destruction of the building will be treated as a CGT disposal, subject to possible roll over relief if the funds are used for another property, but what isn't clear is how the deemed disposal and the actual disposal fit into the new CGT reporting rules on residential land and property.  When the property itself has been totally destroyed are these both treated as disposals of residential reportable within 60 days? Although the compensation payment derives from an asset that was originally a residential property it is a compensation payment not a disposal of property and what was left was not habitable.  The subsequent land sale also clearly no longer had a habitable residential property on the land would this still be treated as falling within the new reporting and payment requirement?

I've found enough in the Revenue manuals and legislation etc to know that both are clearly treated as CGT events but am really struggling to find a definitive answer regarding the new rules.

Replies (31)

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By CJaneH
14th Jan 2022 17:55

Nov 2022?

Ignoring the above dates, this shows how the boffins that design new tax systems to accelerate payment of tax do not live in the real world.

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Replying to CJaneH:
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By KTS
14th Jan 2022 18:50

Sorry should say November 2021 .. it’s that time of year

The whole system is just ridiculous. This taxpayer is represented and had been advised of the new rules but they never sold the building so he didn’t know it would fall within it. When he then sold the land there isn’t a residential property that can be lived in so still can’t understand how it fits the new rules. How anyone unrepresented gets it I have no idea.

To still set it at 60 days under current circumstances is just utterly ludicrous.

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Replying to KTS:
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By Tax Dragon
14th Jan 2022 19:35

KTS wrote:

To still set it at 60 days under current circumstances is just utterly ludicrous.

If you can't get the return done in that timeframe, write to advise HMRC of the disposal, say you can't get the return done under current circumstances - and refer back to that letter should penalties ever arise, when you appeal.

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By The Dullard
14th Jan 2022 18:29

UK resident taxpayer? Any tax payable? No return is required for a UK resident where there isn't any tax.

Otherwise, yes there are two disposals.

You might then argue that there was no tax due on disposal 1 though (and so no return) as base cost equal to the compensation should be deducted (reducing the base cost for disposal 2) on a fair and reasonable basis, rather than applying A/(A + B), under SP D1. It doesn't effect the overall gain, all made in the same year, but just avoids a pointless return.

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Replying to The Dullard:
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By KTS
14th Jan 2022 18:43

Yes to UK resident. Don’t know to tax payable as I was only informed today so not seen the figures yet. The property was inherited some time ago so even though the settlement is presumably low it may still exceed base cost.

The point in disposal 1 is helpful though thank you .. that one is definitely past the reporting point so would give me an argument to avoid late filing repercussions. Part of the property was commercial as well with the residential being a flat above so fingers crossed the allocation between them helps too once I get that info

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Replying to KTS:
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By The Dullard
14th Jan 2022 20:56

You could avoid in year reporting altogether thinking about it.

Allocate sufficient base cost to produce a zero gain on disposal 1, quoting SP D1. Then on disposal 2 it isn't residential any more, as you have said, and so isn't reportable in year for a UK resident.

When you file the final return, nobody's going to care what you did for disposal 1, because the overall position is correct by disposal 2.

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Replying to The Dullard:
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By KTS
14th Jan 2022 22:18

That’s the bit that isn’t clear. Would it still be deemed to be a residential land disposal? I love how the Revenue’s examples are always so much simpler than real life. I’ve never yet had one that fits nice and neatly!

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Replying to KTS:
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By The Dullard
14th Jan 2022 22:30

At the time of disposal of the land there is no dwelling on it.

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Replying to The Dullard:
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By Wanderer
15th Jan 2022 01:29

The Dullard wrote:

Then on disposal 2 it isn't residential any more, as you have said, and so isn't reportable in year for a UK resident.

The Dullard wrote:

At the time of disposal of the land there is no dwelling on it.

Do you think that conclusion fits in with S3(1)(a) Schedule 1B TCGA1992?
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Replying to Wanderer:
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By KTS
15th Jan 2022 08:18

So if I submit a claim under s24[3] that the building is separate and effectively rebase under s24(1) the land then becomes not residential as an excluded interest by way of para 4 (1) of schedule 1B thanks to para 6? (All references taken from https://www.legislation.gov.uk/ukpga/1992/12/schedule/1B)

Annoyingly the Revenue manuals set it out relatively clearly for non residents - I’m assuming the same would apply to UK resident disposals but I’m stroll hunting to find anything quite as clear to be able to rely on it. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg73746

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Replying to KTS:
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By Wanderer
15th Jan 2022 11:54

Does S24(3) help though?
"shall be treated as if he had also sold, and immediately reacquired, the site of the building or structure"

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Replying to KTS:
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By KTS
15th Jan 2022 17:02

I’ve just noticed I put the wrong link .. should have been this one to the manuals https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg73752. This is the guidance up to 2019 though so I still need to work through how that changed for 19/20 onwards. I’m not sure it alters any of the responses but wanted to correct it in case anyone else is following it through :)

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Replying to KTS:
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By KTS
15th Jan 2022 17:15

(Duplicated post removed)

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Replying to Wanderer:
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By The Dullard
15th Jan 2022 11:12

True. Never assume!

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Replying to The Dullard:
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By Paul Crowley
14th Jan 2022 22:23

Best fit solution
All goes through the system as taxable, and HMRC could only guess at the answer if taxpayer had asked them

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By Tax Dragon
15th Jan 2022 06:52

OP, when Wanderer points you at something, go and look at that thing.

The answer here affects the rate of tax as well as whether you need to make the CGT return(s), so you do need to get it right.

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Replying to Tax Dragon:
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By The Dullard
15th Jan 2022 11:19

Er... did you read s 24(3)? And then consider its impact on the meaning of relevant perion in Sch 1B, para 2(5) and how that impacts on para 3? The answer here affects the rate of tax as well as whether a return is needed. :)

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Replying to The Dullard:
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By Wanderer
15th Jan 2022 11:43

Not convinced the "Er..." comment towards TD is justified? At the time of making that comment we were only considering the definition of “disposes of residential property”. We're now moving the conversation forward from that to determine 'The answer...' (possibly via S24(3) to 2(5) but not convinced of that at this stage).

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Replying to Wanderer:
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By The Dullard
15th Jan 2022 13:50

TD was inviting the OP to look at Sch 1B, para 3, that you had referred the OP to.

I think the OP had looked and had gone off way ahead of that, but TD made the invitation without looking where the OP is at.

I agree though that s 24(3) does have the effect of just moving the problem backwards in time.

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Replying to The Dullard:
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By Wanderer
15th Jan 2022 15:22

Okay, see why you thought that. Problem with the layout of these threads. OP hadn't got as far as S3(1)(a) Schedule 1B nor 24(3) in the discussion when TD made their comment.

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Replying to Wanderer:
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By The Dullard
15th Jan 2022 15:28

Ah! Indeed!

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Replying to The Dullard:
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By Tax Dragon
15th Jan 2022 15:38

The Dullard wrote:

TD made the invitation without looking where the OP is at.

You are right that I hadn't seen the OP's post at 8:18 when I made mine at 6:52.

Edit... I see that point has already been made. Nappy emergency (not mine) arose whilst I was typing!

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Replying to The Dullard:
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By Tax Dragon
15th Jan 2022 16:15

The Dullard wrote:

I agree though that s 24(3) does have the effect of just moving the problem backwards in time.

To 2018, when it would not have been a problem...

Perfect solution. If the technical analysis is correct.

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Replying to The Dullard:
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By Tax Dragon
15th Jan 2022 16:11

The Dullard wrote:

...consider its impact on the meaning of relevant perion in Sch 1B, para 2(5)....

Is there one? Comparing with the language in s222(7) and then s223(7)(a), does the rebasing restart the relevant period?

You/the OP may be right, but it's not 100% clear (to me) that you are.

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By Wanderer
15th Jan 2022 13:24

Whilst the technical discussion may still need to be had you've introduced extra facts since your OP.

"The property was inherited some time ago so even though the settlement is presumably low it may still exceed base cost."

"Part of the property was commercial as well with the residential being a flat above so fingers crossed the allocation between them helps too once I get that info"

You can also allocate all the AE against the residential part. In an ideal world you are probably not looking for zero gain on the residential part but a gain up to but not exceeding the AE. i.e. zero tax so no 60 day return.

With all this in mind I'd personally wait until I have all the facts & performed the various allocations & draft the calculations before I worry about the 60 day return. It may be one isn't required at all. And, if it is, you can't do it without performing the calculations anyway.

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By KTS
15th Jan 2022 17:12

Just to clarify .. no I hadn’t found the details in Sch 1B until the help was provided so appreciate being directed to it and it is the layout of replies that created the confusion.

And yes also correct there are a number of factors that aren’t included in the OP and they will need taking into account at some stage. But if I can find confirmation that it is either treated the same as the non resident treatment up to 2019 or is no longer treated as residential so outside of the 60 day reporting requirement then from a practical viewpoint it would enable me to delay that calculation to a week when I’m not already over stretched hence reviewing that question first.

But yes part of me is very much hoping that you are right and it turns out that there is insufficient reportable gain on the residential section so it becomes academic for now - the rest of me knows from experience it never works out that way when the questions turn up out of nowhere in the middle of January. You never know I might get lucky this year :)

All of that said thank you for the help everyone .. it’s clarified a number of areas and all comments are greatly appreciated.

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Replying to KTS:
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By Tax Dragon
15th Jan 2022 17:11

FWIW in my view an interpretation that says someone "acquired the interest in [the] land being disposed of" when the property on the land burnt down is not one that HMRC, a Tribunal or indeed common sense would agree with. S/he may be treated as disposing of and reacquiring the asset on that date, but that's not when s/he first had an interest in it.

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Replying to Tax Dragon:
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By Tax Dragon
15th Jan 2022 17:37

Actually my "[the]" there is erroneous. "Acquired" and "disposed" refer to the interest, not [the] land.

Same conclusion though :-)

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Replying to Tax Dragon:
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By KTS
15th Jan 2022 17:49

I’d be inclined to agree (with the first point not the extra (the) bit lol)

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Replying to KTS:
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By Wanderer
16th Jan 2022 11:28

KTS wrote:

But if I can find confirmation that it is either treated the same as the non resident treatment up to 2019 or is no longer treated as residential so outside of the 60 day reporting requirement then from a practical viewpoint it would enable me to delay that calculation to a week when I’m not already over stretched hence reviewing that question first.

I think, at times, us accountants / tax advisers worry too much.

This client, who you have previously advised before about the rules, sold their land in November 2021 but didn't inform you about it until 14 January 2022.
As of today they still haven't furnished you with the information to either calculate the gain nor determine whether a 60 day return is due or not.
Once you've done that you've then got the whole process of jumping through the hoops to get them to register under the new system.
And all this at one of your busiest times of the year when you are already overstretched.

Personally my attitude would be that I would't be working on it until February & if they kick off about their (potential) £100 penalty then they can go elsewhere.

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Replying to Wanderer:
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By KTS
16th Jan 2022 13:59

In principal I agree totally. In practice I know I’ll be working late again this week .. it’s what we do. To be fair this one is a good client who usually gives me everything early enough and I’m late doing his paperwork this year for various reasons. I’m covered in that he didn’t tell me about the actual settlement and sale because it’s current tax year and he won’t complain if he gets a penalty but if I’m within the 60 days and I can then he will get his done. The client who delivers papers to me in January every year will be pushed further back and probably won’t make the 31 January deadline because of it and I won’t be losing sleep on that one. They’ll still be before 28 February anyway.

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