CGT Calculation

[businessmind]

I wonder if the experts here would give me a view.

I purchased a properly at the start of the year which I planned to renovate and let out, adding this to a small portfolio of other properties I let out.

The renovation costs were higher than expected resulting in a lower rental yield than I had assumed. I found a party who was willing to rent the property for 6 months with a view to buying it at the end of their tenancy, this is going to plan and they will complete the purchase in the New Year.

As a gesture of goodwill I offered to deduct the rent they have paid form the price (£1,000pm / total £6,000) by way of an allowance or gifted deposit. I bought the house for £200,000 and have agreed a sale price of £250,000 from which the ‘allowance’ will be deducted.

I believe I will pay CGT on the disposal and can deduct the capital cost of the renovation work, along with buying and selling costs (i.e. legal fees) and the stamp duty I originally paid when calculating the profit but do I also deduct the ‘allowance’ I have made. I will of course be disclosing the rental income for income tax purposes.

[SteLacca]

If the rental income has been properly declared and tax paid as appropriate, then it is not payment or otherwise to the sale, but rather you have discounted the sale price to below the £250,000. Provided that the purchaser is not a connected party (in which case an OMV price may have to be used), simply use the actual consideration for purchase rather than the agreed amount.

[pawncob]

Presumably nothing has been declared as it's in the current year. I'd treat the monies received as a deposit on the sale price as this may improve the CGT position.(Assuming that it is treated as CGT. It has elements of trading)

[SteLacca]

Except, rental income may only be chargeable at 20%, whilst the CGT will be chargeable at 28%.

[bd6759]

The rents received have to be treated as rents received. They are paid under a tenancy agreemnt. You can't call them something else simply because the tax implications are better.