I have a self employed flooring contractor who purchased a property in 2014 to refurbish and sell on, which he did so in early 2016.
The client included the gain in his 2016 Return and paid the CG liability arising.
In 2018 the new owner of the property lodged a claim against my client because Japanese Knotweed was discovered in the garden. My client could not produce a survey showing that the property was Knotweed free. After 18 moths of 'discussions' my client's solicitor recommended an 'out of court settlement' was the 'best' basis of settlement. The 'agreed' amount of compensation was a little over £51,000, which my client duly paid.
There was no mention of the legal action until I commenced work on the 2019 accounts. My client is continuing in self employment.
Is it possible to claim relief in respect of the £51,000 compensation and if so how, please.
Many Thanks
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Why did he have a CG liability?I have a self employed flooring contractor who purchased a property in 2014 to refurbish and sell on, which he did so in early 2016.
The client included the gain in his 2016 Return and paid the CG liability arising.
It's not all bad news though. I'd venture that relief for the £51k will be easier to obtain under the income tax code than it would have been for CGT.
Presumably the OP wouldn't have made a mistake:-
https://www.accountingweb.co.uk/any-answers/property-trading-0
purchased a property in 2014 to refurbish and sell on, which he did so in early 2016.
The client included the gain in his 2016 Return and paid the CG liability arising.
Who advised your client to report trading income as a capital gain?
That's a lot of compensation for a problem the new owner could have solved himself with a sprayer, a bottle of glyphosate and a bit of research. It might take 2 or 3 treatments over 2 or 3 years to break it's back but knotweed is just a plant, it's not immortal.
Now is the best time to spray - just after flowering. If it was a typical-sized garden I would have been happy to treat it if I lived locally for about £3,000.00.
You need to respond to the queries raised by other posters before anyone can make a start on that.Any ideas on how 'we' can claim tax relief for the compensation, (which incidentally was initially a little over £100k), .... please
Any ideas on how 'we' can claim tax relief for the compensation, (which incidentally was initially a little over £100k), .... please
As others have said, the starting point for getting the answer to this is for you to tell us why this apparent trading activity was treated as a capital gain.
Once we know the reason for that it might become clearer whether or not any relief for the compensation payout is available.