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Where Taxpayers and Advisers Meet

Trading Or Investment

charlottestax
Posts:24
Joined:Sat Dec 14, 2013 1:40 pm
Trading Or Investment

Postby charlottestax » Mon Oct 22, 2018 11:42 am

I'd appreciate advice on this transaction:-

My spouse and I own our main residence and are retired.

I inherited a property from a relation in 2016.
Planning Permission has been obtained to convert and extend into apartments.

The property is remote from our home so the intention was to find a developer wishing to carrry out a joint development.
We would sell some apartments but I would retain ownership of one or more apartments and let them, one for holiday lets which we would use occasionally, any others retained to be let on Assured Shorthold or holiday lets depending on demand.

My spouse became ill so I decided to put the property on the market with the benefit of planning permission.
It went on the market at a figure well above that recommended by agents for sale at probate time. That is before there was the idea of obtaining planning permission.

There is now an offer accepted from a family who wish to refurbish and keep it as a family home.

Is this trading or investment activity?

If investment, can are the costs of the planning permission etc. allowable against CGT?

No mention has been made on any of our HMRC tax returns, but all activity is within the periods allowed for notification of the start of the business to HMRC and for amending the returns.

AGoodman
Posts:1734
Joined:Fri May 16, 2014 3:47 pm

Re: Trading Or Investment

Postby AGoodman » Mon Oct 22, 2018 1:28 pm

No, it doesn't sound like trading to me.
The main test is whether you bought the property with a view to selling and, as you inherited, this does not apply.

Sounds fine. You will of course get CGT on the profit over probate value.

I'm no expert so hopefully others will weigh in but I would hope that the cost of planning permission should be deductible.

charlottestax
Posts:24
Joined:Sat Dec 14, 2013 1:40 pm

Re: Trading Or Investment?

Postby charlottestax » Mon Oct 22, 2018 5:04 pm

Thank you AGoodman, your prompt reply is much appreciated. :)

Yes I hope others will confirm your view and advise whether planning costs etc. are allowable for CGT purposes.

bd6759
Posts:4256
Joined:Sat Feb 01, 2014 3:26 pm

Re: Trading Or Investment

Postby bd6759 » Mon Oct 22, 2018 8:03 pm

I agree this does not look like a trade.

The actual cost of planning permission is probably allowable, but that would only amount to a couple of hundred pounds. If you mean all of the associated costs such as architects drawings and consultancy fees, then those are not costs you could deduct.

charlottestax
Posts:24
Joined:Sat Dec 14, 2013 1:40 pm

Re: Trading Or Investment

Postby charlottestax » Mon Oct 22, 2018 8:35 pm

Thank you bd6759 much appreciated.

charlottestax
Posts:24
Joined:Sat Dec 14, 2013 1:40 pm

Re: Trading Or Investment

Postby charlottestax » Tue Oct 23, 2018 1:48 pm

I agree this does not look like a trade.

The actual cost of planning permission is probably allowable, but that would only amount to a couple of hundred pounds. If you mean all of the associated costs such as architects drawings and consultancy fees, then those are not costs you could deduct.

Thank you again. Looking at the figures, the Council planning application fee was about £3K for a conversion in to multiple dwellings.
I'd appreciate confirmation that this is definitely an allowable expenditure?

Other expenditure include a high spec. security system which is removable.
This would be sold separately at a loss.
Just to confirm - is it correct that the loss could be set against the property gain, provided it is in the same tax year?

charlottestax
Posts:24
Joined:Sat Dec 14, 2013 1:40 pm

Re: Trading Or Investment

Postby charlottestax » Tue Oct 23, 2018 5:34 pm

I see that CGT does not apply to assets with a life of less than 50 years.

So I will start a thread on the CGT section to deal with the detail now I know this is Investment and therefore CGT related, not trading and income.

Thank you

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: Trading Or Investment

Postby Lambs » Tue Nov 13, 2018 12:08 am

C,

To expand a little on previous posts, the obtaining of planning permission does not mean that the activity is trading (although in some cases it might be indicative, alongside other factors). This was established in Taylor v Good

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim60070

To clarify on treatment, tt will be a further cost of enhancing the asset you acquired under inheritance, and not a separate loss incurred now.

Likewise the cost of installing the security system, on the assumption that it is fixed to the building and not easily removed (if it were easily removed, it might not be that successful a security system!) This would again rank as an improvement to the property, in normal circumstances.

These should be added to the initial deemed cost of acquisition (probate value on inheritance) to derive the net gain on disposal.

I am afraid I disagree with BD that professional fees incurred in the furtherance of planning permission are NOT allowable. If they can be said to enhance the value of the asset when marketed, then they may be allowed, even if the particular buyer does not want to develop in accordance with those plans (including professional fees) that you paid for. The conditions for enhancement are set out at:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15180

The likely determining factor here would be whether or not the planning exercise enhanced the land's value at the date of sale. The usual answer would be "yes" but if you planned for the side of the apartment to swing out and act as a landing pad for Thunderbirds 2...some might argue that such would not be enhancing the value. (They would be wrong: a landing pad for a fictional rocket-ship is always an enhancement, in my book).

However, more seriously, I would always recommend that you sought competent professional advice where the sums involved are significant.

With regards,

Lambs

bd6759
Posts:4256
Joined:Sat Feb 01, 2014 3:26 pm

Re: Trading Or Investment

Postby bd6759 » Tue Nov 13, 2018 1:23 am

It is arguable that expenditure ON planning permission, is not expenditure ON the asset. The rule at s38 is very restrictive. Expenditure in connection with the asset is not expenditure on the asset, even if it enhances the value.

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: Trading Or Investment

Postby Lambs » Tue Nov 13, 2018 5:33 am

B,

s38 restricts at (1)(b) according only to "wholly and exclusively". I would agree that, specifically in relation to INCIDENTAL costs, 38 IS particularly restrictive. But when it comes to costs incurred simply in enhancing the asset, the only significant restriction / criterion is that the work, etc., still be reflected in the asset on disposal.

Regards,

Lambs


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