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Where Taxpayers and Advisers Meet

Profit share bill allowable expense against CGT?

Dorset View
Posts:3
Joined:Wed Jan 24, 2018 9:14 pm
Profit share bill allowable expense against CGT?

Postby Dorset View » Wed Jan 24, 2018 9:38 pm

I bought a property for 180K at auction, just above an acre (1.2 agricultural .25 residential) and had it valued at 250K a few months later by the mortgage valuer and have his report (1. could I use the 250 K figure since auctions include most of the market?).
I demolished and built a property intended as my family home but sold without living in it at 171K ‘CG’ (family settled, costs high). It was my first and only ‘home’ and we rented whilst building (3 yrs).
I did substantial land reclamation work worth about 25K and demolished the cottage (quotes for 10K); neither of which costs show up in my books - (2. could I include them somehow?)
If I had agreed with the project manager on a 50K or even 50% share of gain should it be sold, could I include his bill for this as a cost reducing exposure to 121K?
(its gutting not to be aloud this one house as my primary residence – but presumably can’t just recycle the sale value into the new house and not declare!?)
Many thanks

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Profit share bill allowable expense against CGT?

Postby bd6759 » Fri Jan 26, 2018 1:00 am

Please clarify a few fatcs.

1. You bought a property for £180K. You want to pretend that it cost £250K
2. You demolished the building and built a new one. You then sold it. This resuted in "171K CG", Did you sell it for £171K, £351K, or £421K.
3. You did some work that another person would have charged you £35K to do. You want to know if you can pretend that you spent that amount and include it as an expense.
4. You want to pretend that you gave some of the proceeds to someone else, and wonder if that is an expense.

Dorset View
Posts:3
Joined:Wed Jan 24, 2018 9:14 pm

Re: Profit share bill allowable expense against CGT?

Postby Dorset View » Fri Jan 26, 2018 10:53 am

I'm posting this question because I want to pay what I owe, and not what I don't need to and I'm unfamiliar with the rules on CGT.
1. I want to know if there is a case for 'below market value'.
2. Obviously I'm guessing at this since I haven't worked out what my starting point is and what isn't allowable etc.
3. The CG was not magic, resources were expended to achieve it, including months of my time not spent earning other income, I'm asking if there is a way that this is accounted for, understanding that this might include a similar figure as income in my accounts.
4. I owe a share of the profits to the project manager and others on the build team, but need to know if I should deduct these for the tax man, or deduct tax before calculating profit to share; so the short answer is 'yes'.
Thanks for taking the time to look, I'd welcome any other views from tax experts.

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Profit share bill allowable expense against CGT?

Postby bd6759 » Fri Jan 26, 2018 7:48 pm

You first post wasn't clear. I was seeking clarificaiton.

1. You need to use the price you paid.

2. Your starting point is the selling price from which you deduct allowable costs. If you have sold it, your starting point is known.

3. You cannot include notional costs for your time. Its a basic principle that you cannot trade with yourself. (In any event, why save CGT at 18/28% when that would result in income tax at 20/40%).

4. Your question started "If..." and then proposed some possibilities (either £50k or 50%) suggesting no such agreement was in place. If there was an agremnt to share the profit, then your first statement (intended as a family home) must be incorrect. You cannot have intended it as home if you had to sell it to realise a profit in order to pay the building costs. Of course the costs you agreed to pay the builder would be deductible, but in this scenario the transaction would be a trading transaction and subject to income tax rather than capital gains tax.

Dorset View
Posts:3
Joined:Wed Jan 24, 2018 9:14 pm

Re: Profit share bill allowable expense against CGT?

Postby Dorset View » Sat Jan 27, 2018 7:55 am

Thanks for your time and advice, I appreciate it, this now clear and helpful.

3. Thanks, this is helpful. (As income I believe can reduce my exposure by paying into a pension, further reducing the CGT at the higher rate, but I'm not aware of feasible opportunities to manage CG in a similar way.)
4. Yes, it was not at 50%. And yes, though I hoped for it to be a family home and built it as such, we did know there needed to be an exit plan and unfortunately we had to use this, there was a contingent agreement on the basis of a sale which helped to secure a good rate should it be for ourselves, but fair to the manager should it be sold and generate a margin (overage-like!?).

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Profit share bill allowable expense against CGT?

Postby bd6759 » Sat Jan 27, 2018 11:58 am

You'll have difficulty persuading HMRC that this is anything other than a trading transaction.


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