Development deal

[West8935]

Hi. I have a question that I hope cN be answered on here.

We have a field. Currently ongoing Outlined planning. We have been in talks with a developer and we have an offer of 2 houses for them the build on the land. Do we pay capital gain tax on the value of the houses or do we not as it is considered an asset...plus we will not have any a actual funds so not sure where we stand.

It is a field that has been inherit 20 years ago. We have paid in excess of 20k anyway which I presume can be used as a previous loss to balance out some of that?

Any guidance would be appreciated

[jerome.lane]

If you sell the land to the builder, then you may get CGT treatment on the value of the sale. If you have a slice of the action on the development, that profit will be subject to income tax.
A CGT liability will arise on a transfer of property and an income tax liability will arise on a sale of developed property. In both cases, you should have received funds to pay the liability.
Tax liabilities are due by the 31 January following the tax year, the profit or gain is realised, so you also have a timing advantage.
Where transfers occur with a debt owing, you should be able to negotiate a way of receiving funds to meet liabilities and you should carefully consider your risk exposure if things were to go wrong.
You may also be able to structure the deal more tax efficiently with a bit of advice. Good luck.

[West8935]

Thanks for this. I have taken it all on board. We are just trying to get the best outcome so I have a couple more queries.
if I am married does the spouses 12500 tax free return minus pensions etc get taken into account. If I'm not married could you marry without issues with time between marriage and selling the land.

What are the rules with signing over 50% of the land to family member and then also using there annual tax free allowance. Can this be done in anyway?

We have been offered another option which is £500,000 cash offer. If I receive the funds over say 3 years this may help as surely we can use our tax free allowance 3 times? Also, doing what I have mentioned above ontop to reduce it even more.

However if we took the houses and CGT got us is there a way of defering the payment and setting up a payment plan of a reasonable amount payable each month. As paying 100,000 in 1 tax year wouldn't be ideal

[AnthonyR]

If you give away part of the land you are treated as if you sold it at the full market value (which realistically is £500k if someone has offered that). Equally if you give away a share then you are treated as disposing of that share. This means that if you were to give 25% of the property to your children you'd be taxed as if you sold 25% of it to them. If you can span two tax years with this gift and the subsequent sale this might allow you to use two annual allowances for yourself (ie 1 this tax year and 1 if you sell next tax year) however it crystallises the disposal and triggers the tax so if the developer pulls out and you don't actually sell then you've triggered a huge gain with no cash to pay it.

However, if you were to gift a share to your spouse (not unmarried partner) then this will not trigger the gain as transactions between spouses are CGT free. This way if the two of you then sold it you would benefit from using each of your annual exemptions.

On the question of deferred payments unfortunately this would not spread the tax. Even if it was paid over three years you would be taxable on the full £500k in the year that you complete the deal, even if you've only received part of the payment. However, the tax isn't actually payable until Jan 31st in the year after the end of the tax year, so you do have a while to calculate and pay over the CGT.

[West8935]

Thanks.