CGT

[Was786]

Hi can you please help? I have a question relating to consideration the amount for consideration is 330k the seller of commercial property landed 180k to the purchaser as a mortgage term 6% for 15 year to buy the property. Now when it comes to work out CGT liability . Which amount do I have to take consideration 330k or net figure 150.(330-180).can you please explain and also suggest if there is any other option where CGT liability can be decreased.

[bd6759]

CGT is calculated on the seling price. The mortgage does not affect the calculation.

[Was786]

Thank you for the reply. I am little confused and need your advise. I have a case were individual sold a commercial property with consideration of 330,000. In actual he only received 150,000 and the remaining balance 180,000 will be paid to him over 15 years. The 180,000 is a private mortgage obtained by the purchaser from seller.

The seller is getting £1000.00 as a rent every month. which will be classified as rental income.

Now when calculating CGT which figure will be taken into account the full consideration 330,000 or the actual sum individual received 150,000?

* The seller has only received the part payment not the full amount 330,000.

Is the above scenario similar to case Coren v Keighley??


Thanks

[bd6759]

How on earth can the seller be getting "rent" if the seller has sold the land!

The seller has given the buyer an interest free loan £180,000. That is getting repaid at £1000 per month over 15 years. It seems a strange arrangement, but one he is entitled to make.

CGT is based on the market value: £330,000. (s17 TCGA 1992).

Coren v Keighley confirmed that the grant of the mortgage was a separate transaction.

[LozaACCS]

It happens quite often in practice, the vendor protects his interest with a legal charge, relief for payments by instalments will not be available since the repayment period exceeds 8 years (S280 TCGA92)

[bd6759]

A legal charge over the property does not protect him from the inflationary reduction to the value of the amount he receives. He has to charge interest to compensate.

[Was786]

Thank you for the explanation. In this case vendor had an arrangement of service charge at 6% per annum.

How the transaction would have been treatment if eg the term were 8 or less than 8 years?

Secondly how one can proof that capital expenditure has incurred on property??. Individual Spend 86k towards capital expenditure but there is no invoice to proof all payments to builders were made by cash.

When the commercial property were sold in 2010-11 the market for property were really down. During that period getting a high consideration for property suggest refurbishment was done which lead to higher market value .

[bd6759]

In this case vendor had an arrangement of service charge at 6% per annum.

The service charge appears to be interest and perhaps should be taxed as such.

How the transaction would have been treatment if eg the term were 8 or less than 8 years?

No difference because you appear to have lent the money to the purchaser rather than agree to an installment arrangement for payment of the consideration. 8 years is the maximum term over which CG tax can be paid where there in installment arrangement. The installment arrangement can be any length.

Secondly how one can proof that capital expenditure has incurred on property??. Individual Spend 86k towards capital expenditure but there is no invoice to proof all payments to builders were made by cash.

When the commercial property were sold in 2010-11 the market for property were really down. During that period getting a high consideration for property suggest refurbishment was done which lead to higher market value .

You need to demonstrate expenditure was incurred for the purpose of enhancimg the value of the asset, was not revenue expenditure, and was reflected in the state of the asset at the time of the disposal. If you have no evidence of a cost, you will have difficulty claiming a deduction. Nobody spends £86k without at least a written agreement of the work to be done and the amount to be paid.