Capital gains tax to be paid or not??

[warshad]

People i am new to this forum so please bear with me. I have a complicated tax issue and nobody seems to have a definitive answer.

My mother is part of a partnership, 3 partners, that ran for 40 years and the business holds around 30 residential rental properties under the name of the partnership.

Sadly the partners now wish to split but no cash considerations will be involved but instead just a fair split of the 30 properties. They have all been valued and the dividing up proccess has stared but we are all unaware of the CGT implications, if any???????

Please help

[AvocadoK]

There is a concession that deals with this situation (ESC D26). The concession states that there is no chargeable gain where joint owners exchange interests, leaving them with sole ownership of one or more properties. Very often, there is a cash equalisation payment, as the properties will not usually divide evenly. The cash element is chargeable to CGT. CGT is charged at 18% or 28% depending on the other income / gains received in the same tax year.

You need to consider stamp duty land tax too. If you have a solicitor dealing with the property transfers, ask him what SDLT is due.

AK

[warshad]

Very interesting reply and very valued too.

Are you 100% sure about this ??

Thanks

[warshad]

Spoke to my accountant and he says this concession you speak about is only for lnads, fields etc etc and not for rental residential properties?? Now i am even more confused???

[AvocadoK]

I have copied the concession below. Although it starts off by talking about 'interests in land', this is taken to include property standing on the land as well. This is made clear later on when it goes on to say that dwelling houses that are exempt (under PPR rules) are not covered by the exemption. They would not need to say this if the concession only applied to bare land! I have used this concession many times, and have agreed its application with HRMC. Get a new accountant if your current accountant sticks to his misunderstood position.
AK





D26 RELIEF FOR EXCHANGE OF JOINT INTERESTS IN LAND

Where interests in land which is in the joint beneficial ownership of two or more persons are exchanged after 19 December 1984, and

either

•a holding of land is held jointly, and, as a result of the exchange, each joint owner becomes sole owner or part of the land formerly owned jointly,

or

•a number of separate holdings of land are held jointly, and, as a result of the exchange, each joint owner becomes sole owner of one or more holding,

a relief along the lines of Sections 247 and 248 TCGA 1992 (relief on compulsory acquisition of land) may be claimed to alleviate the charges to capital gains tax which would otherwise arise.

If the consideration received or deemed to be received for the interest relinquished is less than or equal to the consideration given or deemed to be given for the interest acquired, relief will be allowed on the lines of that provided by Section 247(2) and (5), TCGA 1992; where the consideration is greater, greater relief will be allowed on the lines of Section 247(3) and (5). For this purpose the interest relinquished will be treated as the “old land” and the interest acquired as the “new land”. “Land” includes any interest in or right over land and “holding of land” includes an estate or interest in a holding of land, and is to be construed in accordance with Section 243(3) TCGA 1992.

Relief will not be allowed to the extent that the “new land” is, or becomes, a dwelling house or part of a dwelling house within the meaning of Sections 222 to 226, TCGA 1992. However where individuals who are joint beneficial owners of dwelling houses which are their respective residences become sole owners of those houses in consequence of an exchange of interests, concessionary relief may be claimed if, by virtue of Sections 222 and 223, TCGA 1992, each gain accruing on a disposal of each dwelling house immediately after that exchange would be exempt. Each individual must undertake to accept for capital gains tax purposes that he or she is deemed to have acquired the other’s interest in the dwelling house at the original base cost and on the original date on which that joint interest was acquired.

Where

•interests in land are exchanged after 29 October 1987; and

•this concession applies to that exchange; and

•there is a parallel exchange of interests in milk or potato quota associated with the land; and

•after the exchange each joint owner becomes sole owner of the part of the quota relating to the land he now owns;

then this concession will apply to the exchange of interests in quota as it applies to the exchange of interests in the land.

For the purposes of this concession a married couple is treated as an individual, so that an exchange of interests which results in a married couple alone becoming joint owners of land or of a dwelling house will meet the terms of the concession.

[Incredulum]

I would say you should get a new accountant anyway. He is clearly not experienced in the area you require.

[warshad]

Thanks again.

Just cant get the accountants these days!!

What would happen if one partner on doing the above decides to transfer the properties to other family members either during the split or afterwards for no cash considerations??

[Incredulum]

Then the partner would be making a disposal which would give rise to CGT based on market value - even if there is no consideration.

[warshad]

What values would be used?? Original purchase amounts when partnership was in force or the value at which they were transferred during split??

[AvocadoK]

The value to use is the market value when the transfer is being made.
AK