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CGT tax on transfer on ultimate sale of land

CGT tax on transfer on ultimate sale of land

The house and land were purchased two years ago and is owned 100% by the client's son. The first point is if the grounds do not exceed half a hectare, is a sale to anyone (including my client) exempt under PPR? I believe it is.

I believe it is legitimate to sell two thirds of the plot to my client and wife. Building work is then likely to commence and at some (possibly intermediate) stage the plot will be sold to a third party. Thus three CGT exemptions can be utilised in the tax year of the sale.

I believe the gain for each parent will be share of sale price less share of enhancement/building expenditure less value of purchase from son.

Is this feasible does anyone think? Anything, in others' experience that I should be wary of?

Many thanks
Peter Coekin


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25th Feb 2005 13:41

The advice was just what I was looking for, as was the link to the other postings. Reading more into the subject you certainly have to be careful when timescales for realising profit are so short.

In case it wasn't clear the clien's son is actually selling some of his garden off, whilst keeping the main residence as his own PPR.

I am leaning towards forming a limited company with son, father and mother as shareholders. Then selling the land to the company, company does the building work and realised profit is distributed as dividends so minimising tax and avoiding NI contributions. Might make up a little for losing three CGT exemptions but still don't think client will be best please!

Thanks again

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23rd Feb 2005 12:38

Not that easy!
My view is that provided your clients’ son’s house is his PPR then he can dispose of the property to his parents and claim the benefit of a full capital gains exemption. That’s the easy bit.

However, I would have thought that your clients planned building work and sale of the property amounted to property development notwithstanding that it may be a one-off. My feeling is therefore that it is an adventure in the nature of a trade. There has been plenty of debate on this site including that here:

As you will see in those postings, I believe the tax practitioner has an enormous burden placed on his or her shoulders by the Self Assessment regime and I would be very reluctant to badge this as within the capital gains arena.

Clearly the transaction is defined by the intention at the outset which is to realise a tidy profit in the short term. There are the classic cases of Rutledge v CIR (1929 14 TC 490), Martin v Lowry [1927] 11 TC 320, and if you want a property one, Johnson v Heath (1970 46 TC 463.

In calculating the gain the son and his parents, your clients, are connected persons and a proper value will need to be established both for SDLT and with regard to the acquisition base cost for your clients when the trading accounts are prepared.

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