What rate of CGT is used for a forfeited deposit

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A client has received a windfall as the buyer of a block of residential flats pulled out and has forfeited the deposit of £120,000. I believe this is a capital gain but is it chargeable at the normal rates or the higher rates for residential properties. 

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Portia profile image
By Portia Nina Levin
12th Dec 2017 14:30

I would say that it is a residential property interest. That is to say that it is an interest in land (UK or otherwise), and that the land concerned is residential.

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By damason
12th Dec 2017 15:04

Thanks, I had seen the article but it did not specify the rate. I suspected it was the property rate although there is no property sold just a failed contract.

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Replying to damason:
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By Tax Dragon
12th Dec 2017 16:26

But for specific provision, I am not persuaded that Portia is right, since, as you say, the vendor's interest in property has not diminished.

It's a moot debate though as there is specific provision: para3 of SchB1. That schedule also applies in relation to NRCGT. I know it's another question, but when does the 30 days start for reporting a NRCG if that arises by way of a forfeited deposit? If a deposit is like an option, then its 'grant' is the date of disposal.

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Replying to Tax Dragon:
By Ruddles
12th Dec 2017 17:01

Tax Dragon wrote:

But for specific provision, I am not persuaded that Portia is right, since, as you say, the vendor's interest in property has not diminished.


I wonder if TCGA 1992 s22 might be considered to be a specific provision?

s144(7) might be another (more relevant) specific provision

Out of interest, can anyone put the words of s144(1)(a) into plain English for me?

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Replying to Ruddles:
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By Tax Dragon
12th Dec 2017 17:42

Reply simplified (hopefully) in the interests of plain English.

If [I am not sure] the effect of s144(7) is to treat the transaction as relating to an asset [an option] other than the property, such that it both disapplies s22 and invokes para3 of SchB1, then I assume you agree with me?

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Replying to Tax Dragon:
Portia profile image
By Portia Nina Levin
12th Dec 2017 17:48

It seems to me that the effect of s 144(7) is not to deem a deposit under a contract to purchase property to be the grant of an option for all CGT purposes, but to treat it as the consideration for the grant of an option for the purposes of the other provisions of s 144, dealing with the grant and disposal of options more generally; particularly to treat the grant of the option and the exercise of the option as one disposal if the option is exercised.

The words in para 3 of Sch B1,"(if it would not be so regarded apart from this paragraph)", are significant to me.

Because... I think it would be so regarded without para 3.

Moreover, I believe that the benefit of an exchanged contract, which binds the vendor to sell the property to you, and which you then choose to forfeit (presumably because you can't muster the balance of the purchase price), would itself be considered to be an interest in the property, whether or not the vendor's interest in the property is diminished by your (non-)act of forfeiture.

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Replying to Portia Nina Levin:
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By Tax Dragon
12th Dec 2017 18:01

If you think that para3 does not apply then our difference is not moot.

What does s144 (as applied by ss7) do, in your view? The only relevant part appears to me to be ss1 which (without prejudice to s21) treats the grant of an option as the disposal of an asset (namely of the option).

EDIT: I missed (or you added) "the effect of s 144(7) is... to treat [a deposit] as the consideration for the grant of an option..."

OK, but only a forfeited deposit - the parts relating to the exercise of an option surely don't apply?

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Replying to Tax Dragon:
Portia profile image
By Portia Nina Levin
12th Dec 2017 17:58

I didn't say it didn't apply. I said that it probably didn't need to be there. Neither probably does s 144(1).

I'm not really interested, because I think it's liable to the higher rates.

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Replying to Portia Nina Levin:
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By Tax Dragon
12th Dec 2017 18:14

Come come. S144(1) is the whole point, isn't it?

I agree your answer though (higher rates). Just not your analysis. But we are back to that being moot.

On my side query (NRCGT), would you say that, as there is no conveyance, the separate return is not needed and ergo that reporting comes (and comes only) into normal self assessment?

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By pauljohnston
20th Dec 2017 10:53

But is it compensationn for a failed contract? If so then does CGT even apply?

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Replying to pauljohnston:
Portia profile image
By Portia Nina Levin
20th Dec 2017 11:17

Have you read the thread at all, and bothered to read the legislation referred to? There is specific provision for it, so yes CGT does frigging well apply!

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Replying to pauljohnston:
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By Tax Dragon
20th Dec 2017 11:17

CGT applies because s144 says so; IMHO CGT would apply even without s144, but whether that's correct or not hardly seems relevant, since we are not without s144.

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Replying to pauljohnston:
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By Tax Dragon
20th Dec 2017 11:22

Portia said it better.

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