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Where Taxpayers and Advisers Meet

Capital Gains on part of property sale

dotto
Posts: 51
Joined: Wed Aug 06, 2008 3:16 pm

Capital Gains on part of property sale

Postby dotto » Thu Aug 20, 2009 10:28 pm

My property consists of a long strip of land on which sits a bungalow with a large garden and a further area on which sits commercial properties. The bungalow and plot take up two thirds of the area and I have a prospective for the bungalow and plot of land. From a previous thread I am aware that I need to sell the plot of land prior to selling the bungalow. The prospective purchaser and myself had agreed that she would have first option to buy the final third when I eventually decide to sell. At the moment I am still running a business from one of the three buildings on the site. I have since had it pointed out to me that should I sell two thirds of the land (which will not incur capital gains tax), I will risk having to pay CGT on the final third when I sell in due course. The final third has a small hairdressing shop on it, a saddlery and a workshop (which I have for personal use). I assume the first two would be classed as commercial properties, but don't think this would make any difference to the capital gains situation.

Any advice you can offer would be greatly appreciated as I do not want to make a costly mistake.

Thank you in advance

DC

Peter D
Posts: 10668
Joined: Wed Aug 06, 2008 3:37 pm

Re: Capital Gains on part of property sale

Postby Peter D » Fri Aug 21, 2009 11:12 am

I assume the strip of land is your garden. Is the commercial property section of land have a seperate deed or did this all start as one plot that all formed the garden for the bungalow. Regards Peter

dotto
Posts: 51
Joined: Wed Aug 06, 2008 3:16 pm

Re: Capital Gains on part of property sale

Postby dotto » Fri Aug 21, 2009 1:47 pm

Thank you so much for responding. The land etc is in a conservation area in a village where there are cottages, new properties etc all jumbled up as you would expect in a village situation. The strip goes off the main road and starts with the hairdressing shop, which used to be the slaughterhouse!! As you drive in you reach the saddlery to your right with car parking in front of it. Continue driving in the same straight line and next is the front garden of the bungalow which is the plot. Then of course is the bungalow which has quite a large garden area to its rear. There are no separate deeds. The whole site was inherited when my parent died last year. It has been in the family for many years and I have been reluctant to sell. However, I have now made the decision to sell the bungalow with its front garden, which the prospective purchaser would like to buy as a separate plot. I would like to hang on to the saddlery, hairdressers, workshop but am concerned that if I sell in the future I will be saddled (so to speak) with CGT. The whole site was valued at £500,000 for probate. If the site is split say £200,000 for the bungalow, £125,000 for the plot, this means the remaining third is effectively worth £175,000. This was not individually distinguished for probate so presumably I would have to convince HMRC of each portion's worth. If I sell the final third say in two years for £225,000, then I assume I would have to pay CGT on the difference in worth. However, if I sold it all now as job lot, there would be no CGT.

I hope this has helped and I am really grateful for your advice.

Peter D
Posts: 10668
Joined: Wed Aug 06, 2008 3:37 pm

Re: Capital Gains on part of property sale

Postby Peter D » Fri Aug 21, 2009 1:57 pm

I assume you live in the property. The seperate sale of the plot of garden may be an attempt to avoid SDTL but if this is picked up as a rleated sale then SDLT will apply. The commercial properties and the land they stand on may not be regarded as your PPR so CGT will allow on any disposal based on the value at probate ( get a formal valuation ) against the realised disposal value. Regards Peter

dotto
Posts: 51
Joined: Wed Aug 06, 2008 3:16 pm

Re: Capital Gains on part of property sale

Postby dotto » Fri Aug 21, 2009 2:25 pm

Sorry Peter, I dont know what SDLT is. The purchaser is a lady with a son. She would like to purchase the bungalow and her son the plot of land. I don't think she is trying to avoid paying anything - or is it me avoiding? Her son would like to self build eventually.

Could you explain SDLT. We don't want to upset anyone or do anything unlawful or that may seem to be unlawful. I have taken on board your point about the valuation and am grateful for your help.

Many thanks again.

Peter D
Posts: 10668
Joined: Wed Aug 06, 2008 3:37 pm

Re: Capital Gains on part of property sale

Postby Peter D » Fri Aug 21, 2009 3:56 pm

Stamp Duty and Land Tax. Yes you could raise a deed for the extra plot and sell it to the Son with no CGT as long as that land was in fact part of your garden and complies with the rules regarding area. Plenty of information on the HMRC web site. As I think you realise you must sell it whilst you still live in the bungalow and it must not be a condtion of the sale of the house. Regards Peter

Peter D
Posts: 10668
Joined: Wed Aug 06, 2008 3:37 pm

Re: Capital Gains on part of property sale

Postby Peter D » Fri Aug 21, 2009 3:59 pm

Please confirm you live in the property and how long you have lived there as the owner which would be the DOD. Regards Peter

dotto
Posts: 51
Joined: Wed Aug 06, 2008 3:16 pm

Re: Capital Gains on part of property sale

Postby dotto » Fri Aug 21, 2009 4:22 pm

Yes, I live in the property and have owned it since my mother's death in March 2008. The total probate was £500,000 - do I need to get a valuation for the third portion of land as at the time I became owner. Do HMRC accept an estate agent's valuation or should I employ some sort of surveyor. I have an estate agent's current free valuation on the bungalow and plot of £325,000 total (with the plot assumed to be the garden). Therefore if this two thirds is sold for £325,000 (plot and bungalow) doesnt that automatically make the remainder worth £175,000, so if I sell at £175,000 separately, say in two years, I would not pay any CGT because the whole lot adds up to £500,000 as per probate.

Sorry if I'm rambling. I hope you have got the gist.

Thanks again.

DC


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