Tax relief is available when an asset is lost, destroyed or becomes of negligible value – this is possible, for example, when a Buy To Let property is purchased ‘off plan’, the builder goes into liquidation, money is lost and the property is never built.
To claim the relief:
- The investor must still own the property when it becomes of negligible value.
- The amount of relief is calculated as if the property had been sold and immediately reacquired.
- The claim can be made for an earlier time in the previous two tax years in which the deemed disposal occurred (see example) or for companies, any accounting period ending not more than two years before the date of the claim. This allows the claim to be backdated to a year when the loss can be most profitably used. For the claim to be allowed it may be necessary to demonstrate to HMRC that the asset had already become of negligible value, at that earlier time.
- The claim is not automatic and needs to be claimed on the Tax Return.
Example:
In November 2013 Fred entered into an agreement with a developer to buy two flats ‘off plan’ for £200,000 per flat. A deposit of 10% per flat was paid plus legal fees of £3,500. Fred received a letter in January 2014 stating that the developer had gone into liquidation. In January 2015 it is confirmed that the development will not be going ahead and that Fred will not be receiving repayment of the deposit.
The loss of £(43,500) ((£200,000 x 2 x 10%) + £3,500) is treated as a normal capital loss for either offset against other gains made during the same year of claim or carried forward against future gains.
The offset could apply for the tax year as early as 2014/15 on the basis that that was the year in which the money was ‘lost’.
101 Ultimate Tax Strategies Revealed.
Click here to receive a free copy of this tax saving guide today!
Please register or log in to add comments.
There are not comments added