CGT Base Cost - Gifted Deposit Discount ?

[landlord1234]

Any feedback on the following scenario would be welcome.

A large we'll know developer sells a property for £100,000 some years ago before the property crash of 2008.

They give the purchaser (private individual) a discount/gifted deposit of £8,000.

The land registry shows that property was sold for £100,000.

Stamp duty is paid on a purchase of £100,000.

The purchaser later sells the property and CGT is due.

What is the base cost when calculating gain , is it 92,0000 or 10,0000 ?

Is/was there any liability on the gifted deposit ?

[bd6759]

What is the base cost when calculating gain , is it 92,0000 or 10,0000 ?

Is this a trick question? If so, the answer is "Neither".

If not, the answer is £92,000.

The £8,000 was a trading discount given by the vendor which reduced the cost of the asset.

[maths]

Need to check but think Day v Dalgety back in 2014 or 15 before the First Tier Tribunal my be relevant.

[landlord1234]

Found this on another site ......

HMRC’s statement of practice SP 4/97 specifically states that a ‘cashback does not derive from a capital asset for capital gains tax purposes’.

I then found

https://www.gov.uk/government/publicati ... ice-4-1997

E. Capital Gains Tax
35. A cashback does not derive from a chargeable asset for Capital Gains Tax purposes. No chargeable gain therefore arises on receipt of the payment. (A cashback does not include a cash payment by a building society to members etc on take-over by, or conversion to, a bank, or by other mutual organisations such as insurance companies or friendly societies on demutualisation.)

As a layman , I'm struggling a bit ( more than a bit to be honest ) with this.

Could someone please translate 'does not derive from a capital asset for capital gains tax purposes' in layman's terms, and how (if at all) this relates to the original post.
Should a figure of 92,000 or 100,000 be used to calculate the gain ?

[landlord1234]

Also found this interesting link

http://www.landlordsguild.com/gifted-de ... landlords/

which states

For property investors who bought buy to let homes with gifted deposits with the knowledge of the lender, the purchase price for capital gains tax purposes is the property value less the deposit amount.
For those with private arrangements not declared to lenders, the purchase price is the property value including the gifted deposit.

[landlord1234]

>>> Need to check but think Day v Dalgety back in 2014 or 15 before the First Tier Tribunal my be relevant.

Hi, were you able to check this or could anyone comment on the previous posts' Thanks

[bd6759]

>>> Need to check but think Day v Dalgety back in 2014 or 15 before the First Tier Tribunal my be relevant.

Hi, were you able to check this or could anyone comment on the previous posts' Thanks

It is actually Day & Dalgty v HMRC. http://financeandtax.decisions.tribunal ... px?id=8317.
The Judge found that it should be allowed.

One year earlier a differrent Judge came to an opposing conclusion in Symonds v HMRC. http://financeandtax.decisions.tribunal ... px?id=6315

There is no precedent to bind any Tribunal, but I do prefer the reasoning in Symonds (because there is very little reasoning in the Day/Dalgety case)

[landlord1234]

Thanks, not conclusive then

what do you make of the earlier post

>> Also found this interesting link
>>
>> http://www.landlordsguild.com/gifted-de ... landlords/
>>
>> which states
>>
>> For property investors who bought buy to let homes with gifted deposits with the knowledge of the lender, the purchase price for capital gains tax purposes is the property value >> less the deposit amount.
>> For those with private arrangements not declared to lenders, the purchase price is the property value including the gifted deposit.

Assuming the property was in question was originally bought as a private home (PPR) without mortgage this would suggest that the £100,000 should be used.

Also, I still don't understand the phrase used in post number 4 , 'does not derive from a capital asset for capital gains tax purposes' , and would be grateful for an explanation in simpler language if anyone could help.

Thanks

[maths]

HMRC’s statement of practice SP 4/97 specifically states that a ‘cashback does not derive from a capital asset for capital gains tax purposes’.

For CGT to apply there must be a disposal.The legislation states "there is for the purposes of this Act [ie TCGA 1992 s22] a disposal of assets by their owner where any capital sum is derived from assets ........".

Hence, if "cashback" does not derive from a capital asset there has been no disposal of an asset and hence no CGT i respect of the cashback.

[landlord1234]

>>> Hence, if "cashback" does not derive from a capital asset there has been no disposal of an asset and hence no CGT i respect of the cashback.

So, does that imply that the "cashback" was received at time of purchase and no CGT was due , but property was bought for £100,000 and that is the base cost when calculating the gain when it is sold at some point in the future ?

Thanks