Backdated sale of rental property to tenant

[jrfurank]

Hello

If a landlord had a tenant since June 2013. Could he elect to backdate a change of a portion of the monthly rent to be payments on account of sale of the property to the tenant, and treat the converted rent to purchase payments, as exchange deposit received? The rational being that throughout the period of the tenancy, both the tenant and landlord had discussed the possibility of a deal, but all payments were to be treated as rent until the sale was agreed between them. A portion of the monthly payment would remain as rent crystallising a rental loss on the adjusted accounts for 2014, 2015 and 2016. If all this is allowable, would he be able to adjust the 2014 rental accounts if he does so before the end of January 2018?

[bd6759]

You cannot re-write history.

[jrfurank]

Thank you.

But do know or have a suggestion how the transaction be reported to HMRC?

A substantial part of the payments received by the landlord is going to be the part of the consideration for the property. If there is no adjustment on the rental income, he would pay tax on the rental profit and CGT on the disposal.

Even if he debits rental income in the current year and crystallises a loss, that does not provide a true picture over the 4 or 5 year period.

[bd6759]

The true pictur is that he rented the property for a number of years and received rental income.

He may offer a discount on the purchase price to the tenant, but that is a different matter.

[someone]

I think the OP is suggesting that if he sells at a discount he will crystalize a loss.

What I don't know is whether the CGT is calculated on the discounted value or the market value.

I assume this is an arms length transaction so discounted value is used.

It is unfortunate if, like most of us, the OP doesn't ever expect to make gains to use up that loss in the future. He will have paid income tax on the CGT loss.

However, SDLT is paid on the consideration. It does seem odd to me that the only reason a discounted value is being offered is because the tenant has been paying rent and the OP is effectively agreeing to treat that as capital. In any other circumstances, artificially reducing the consideration would be seen as SDLT avoidance.

Or is SDLT consideration to include the rent payments?

[bd6759]

No. He is saying that if pretends that some of the rent wasn't actually rent, he would crystalise a rental loss. Such a loss wol dbe no use to him because it woul dbe lost when th eproperty was sold (it cant be set against any other property). Its not really clear why he would want to finance this loss out of his own income. It woul dhave made much nore siencse if he said that he prentend only the rent needed to break even was rent and the rest was the sale orice in advance,

As you say, SDT would need to include the rent payments.

CGT is always based on market value. (But market value can include a discount.)

[bd6759]

With apologies. Dyslexia gets bad when I'm tired.

[AdamS93]

I assume that your client wants to back date the sale so that the gain is covered by PPR or just to reduce CGT.

You cannot re-write history. HMRC will look at contracts, solicitors documents and SDLT return which would've been due 30 days after sale so a mere 4 years 6 months late.

Tax planning is a proactive task, you can't wait until a problem arises before you fix it (especially 4 and a half years!).

I dare say that if he wants to back date the sale then the purchaser/tenant is a family member which will cause problems with regards to 'selling at a discount' for CGT purposes as the disposal will be deemed to take place at market value.