CGT ON SALE OF LAND

What tax rates are applicable?

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In 2008, a limited company sold a residential property that it  had previously let out. Land attached to the property was retained, without planning permission. At the same time, the land was transferred from the company to the 4 directors as individuals, one quarter each at market value. Much later, pp was obtained and the land sold in 2017/18. Do readers think  the 'Type of asset' entry in the Capital Gains Worksheet should be in 'Other Property assets and gains' or in 'Residential property and carried interest' as this will greatly affect the amount of tax due. Any replies will be gratefully received.

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paddle steamer
By DJKL
13th Aug 2018 11:38

Are you sure it should be treated as a capital gain?

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By Montrose
13th Aug 2018 16:48
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Replying to Montrose:
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By goldenfawn
15th Aug 2018 13:46

Yes, the more I read the worse it gets. However, it is possible, that initially, it was their intention to let the land.

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By Portia Nina Levin
13th Aug 2018 18:04

I don't see anything to suggest that this is trading. Merely getting planning permission isn't an indicator.

See HMRC's view in a different context: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65243

The above reference to a section of HMRC's manuals that deals with legislation that hasn't applied for two years isn't at all useful either.

If it is CGT, and there's no dwelling on the land, then the residential CGT rates are not in point.

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By fawltybasil2575
15th Aug 2018 15:21

@ goldenfawn (OP).

(1) Your initial question does not specifically say what (if anything) the land was USED for in the 9/10 years in which it was owned by the four directors - please advise.

(2) As the land, throughout its ownership by the four directors (the fact that it was previously attached to a dwelling when owned by the company is not relevant), was not a residential property, then the residential property rates are not relevant.

(3) Your 13.46 post appears to take a pessimistic line, in impliedly accepting the probability that the sale would result in the gain/profit being chargeable to Income Tax, rather than CGT. In fact, there is nothing thus far which IMHO supports such pessimism.

That is not to say that there is no possibility of its being chargeable to Income Tax, but on the balance of probabilities from the information supplied thus far, the odds are in favour of CGT applying.

A key factor is the acquisition of the land, by the four directors, in terms of the PURPOSE of that acquisition. In that regard, one would need to know the PURPOSE of the four directors' acquiring the land from the company - please advise, after enquiry of the directors if necessary, what was such purpose.

Another pointer to CGT is the relatively long length of time (9/10 years) between acquisition and sale (this is presumably the point to which PNL was alluding to in his providing a link to HMRC guidance, albeit such guidance relates to the gain/profit on the sale of a dwelling).

So, thus far, I would be leaning 85% towards CGT - but your responses should assist in determining whether IT or CGT will apply (theoretically, it will not necessarily be the same answer for all the four directors, as their intentions may have been different - for example if one director was a property trader but the other three not so).

Basil.

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