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Where Taxpayers and Advisers Meet

Acquisition at probate & property developer trading

simpsonite
Posts:109
Joined:Wed Jun 24, 2009 11:58 am
Acquisition at probate & property developer trading

Postby simpsonite » Mon Feb 22, 2016 3:52 pm

Hi All,

My client has acquired his late father's home at probate. He is currently residing at the property. In the next few years he is looking to develop the plot and either sell it as it is with planning permission to a property developer or demolish the site & self build 4 new homes.

The base cost for CGT purposes is probate value. But once planning permission is obtained then the market value will increase significantly. Regardless of this fact is it still the probate value at date of death with any hope value attached that remains the base cost for CGT?!
I could substitute the sale proceeds for the probate valuation s .274 but this would create additional IHT so would be pointless.

Might PPR relief be denied on obtaining planning permission on the grounds of an intent to make profit?

If my client decides to demolish the house and self build 4 new homes then he is trading as a property developer.
So, in his accounts do I bring in the probate value as stock or is it the higher mv of the levelled site with planning permission??


thoughts appreciated

simpsonite

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Acquisition at probate & property developer trading

Postby maths » Mon Feb 22, 2016 4:41 pm

Much will depend upon the son's intention on moving in to his father's house.

If he does not intend to (and does not) live in the property as his sole or main residence CGT is irrelevant to any subsequent gain made.

If the property qualifies as his residence the obtaining of planning permission will not preclude the gain on a subsequent sale from qualifying as CGT exempt.

However, if planning permission is obtained and he commences work on developing the property for sale then any subsequent gain (following appropriation to trading stock) will be subject to income tax.

Probate value applies for CGT purposes only if the value of the property was ascertained for IHT.

simpsonite
Posts:109
Joined:Wed Jun 24, 2009 11:58 am

Re: Acquisition at probate & property developer trading

Postby simpsonite » Mon Feb 22, 2016 5:08 pm

Hi Maths,
Yep I concur with your points.

What about the market value of the land to be introduced into the property building business.
Is it the mv of the levelled site with planning permission which is valued at over £1 million. Or is it the lower probate value of the plot (current house and garden) valued at £650k

simpsonite
Posts:109
Joined:Wed Jun 24, 2009 11:58 am

Re: Acquisition at probate & property developer trading

Postby simpsonite » Mon Feb 22, 2016 5:51 pm

It appears its based at m.v at time he becomes a property developer under the Sharkey V Wherner principal.
A gain is crystalised at that point is my understanding & the plot would be appropriated to trading stock at that time.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Acquisition at probate & property developer trading

Postby maths » Mon Feb 22, 2016 8:18 pm

The key is the date of appropriation of the property and at that time it is market value.

simpsonite
Posts:109
Joined:Wed Jun 24, 2009 11:58 am

Re: Acquisition at probate & property developer trading

Postby simpsonite » Tue Feb 23, 2016 12:15 pm

Yep thanks for that.

One final point.
If he decides to just obtain planning permission and sell the plot as it stands (house & large garden).
Say he doesn't live there then a gain will arise based on sale proceeds less probate value (with an element of hope value attached)

My query is whether HMRC would give him the uplift value for base cost being the revised valuation with planning consent.
Or is he simply stuck with the original probate valuation.
(Bearing in mind also that s.274 is not a consideration In this case)

cheers
simpsonite

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Acquisition at probate & property developer trading

Postby maths » Tue Feb 23, 2016 3:08 pm

Assuming the value of the property has not been ascertained for IHT the base cost for CGT would still be probate value.

However, if it could be argued that at death the probate value failed to take into account any "hope" value then it is arguable that the value at date of death is value including hope value (but this may then impact on IHT on death).


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