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Any Answers Answered: Income tax or CGT?

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TaxTV’s Giles Mooney tackles two tax conundrums involving the increase in value of a property and the loss of sale of a property.

9th Dec 2020
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To view the full questions and AccountingWEB reader answers click on the links below:

Increase in value of a property

The first question comes from AccountingWEB member snickersinatwix, whose client lent his parents a large sum of money to purchase a house with the promise that when the house was sold, they would return his money plus half of the increase in value of the property. 

"Our client has now received £110,000," the reader said. "Would you treat the £60k as capital gain or interest? I don't think we can treat it as a gift as there was an agreement."

Loss on sale of a property

The next question comes from AccountingWEB member Openhouse, whose client purchased a property in 2018 and went on to sell it this year but with a very large loss.

"He paid 240,000 for it including stamp duty etc. Spent 15,000 on it in 18/19 and 10,000 on it in 19/20 and net proceeds from sale in June 2020 were 255,000 so a loss of 10,000 so not a very successful venture," the reader said. "Couple questions - would this constitute a trading loss or a capital loss? And if it is a trading loss and goes on his 2021 tax return as a loss of 10,000 can the loss be offset against his other income? Or should it be treated as a capital loss?"

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By geoffmw1
14th Dec 2020 10:32

surely a Capital gains loss unless the trade is construction and even then it depends on the purpose of owning the property

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