How is the market value of property calculated for CGT - while undergoing major works

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    How is the market value of property calculated for CGT - while undergoing major works

    Dear All,

    I have a property that is currently undergoing refurbishment and as such has no bathroom, toilet, kitchen, some walls have been stripped back, work to flooring etc. What I'm getting at is, at the moment if I wanted to suddenly sell I would not be selling at full market value.

    IF I were to try to move these into a ltd company now, how is CGT calculated? Would it be on how much the properties would fetch at once complete, or before the works began, or right now?

    Ok, so even if it were market value once complete, how is this calculated? Looking on the usual websites I can see that the expected value of my property is around £100k less than a neighbour recently sold for. I think the websites generally use a percentage increase calculation. I'd of course be happier to use this to evidence the value. If I sold would a RICS surveyor need to assess?

    Thanks all,

    C

    #2
    you insert a value on the TR1 , pay the stamp and hope for the best. I think ideally you would get an independent valuation but second best take a complete set of photos so that if HMRC query why the sale was at an apparent undervaluation you can send the photos and explain it was not mortgageable and hence of much reduced value. Right is on your side.

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      #3
      I am not following the question at all. Unless you are gifting it, the market value is the price at which you actually sell.

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        #4
        Thank you,

        I would be selling into my ltd company. I am aware that you cannot sell for say £50,000 when the property is worth £600,000, that HMRC would require CGT to be set at the market value for the property.

        My question is that yes, the property might be worth £600,000 if it were all done. But it is currently undergoing major works.

        I bough the property in 2005 at £150,000. It was a hovel. I spent around £60,000 on it. then recently because of a flooding incident I had to remove the bathroom. I then decided to do the kitchen and move everything around a bit (make it open plan etc). The tenants left it in a bit of stat, bless them.... I am in the middle of that phase now. I am wondering whether I would need to pay CGT on £600,000 if I moved it into a ltd company now, right at this moment. If not, and I can put down the true value of it as it is today, the CGT would be significantly lower and I might actually be able to afford it! I'm wondering whether this is good timing.

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          #5
          a) Repairs of damage caused by tenants does not represent either a capital loss or a capital expense.
          b) Market value is market value at the point of transfer
          c) That (true) market value would also form a baseline for subseqenet sale by the Company. You are kind of assuming CGT will go down????

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            #6
            Thanks, I think I am not making myself very clear.

            The property was bought in a bad way, I'd say JUST about mortgageable, but this was the wild west period of mortgages so I was lucky enough to buy my first home. I spent many thousands over many years making it a habitable home for myself. I moved on, made it a buy to let.

            I am completely refurbishing it after 15 years. I am in the middle of major works (i'm moving rooms around, movings walls, addressing the central heating, etv etc). I am wondering whether this is a good opportunity to sell the property to my own ltd company while it is in this state because the market value of it in this state is significantly lower than if it were in good order. I wondered whether the taxman could have any objections to that.

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              #7
              I don't think a RICS valuer will say that it happens to be worth nothing this particular month because nobody can get into the door and has scaffolding. But next month it will be fine. So yes I think they would object.

              But you still haven't explained the advantage (and taken on board the potential massive disadvantage) of valuing it low when CGT rates are low.

              Market value is what you would get if you sell it, and anyone buying would understand that you will complete the works (or they will). It is not about whether you can sell it at this point in time because of some inconvenience. Certianly there are LONG TERM inconveniences that would count (like having a co-owner who refuses to sell without a court order)

              Comment


                #8
                Thank you for taking the time to respond again.

                The advantage I seek is paying less CGT than if the place were in good shape.

                I hadn't really thought of disadvantages. You mention selling. I don't intend to dispose of the asset any time soon (ever?). I'be got a bunch of kids here I'm hoping to pass my property onto... What are the others disadvantages I am missing? It might be that I am blinkered by the pros of having property in the ltd company for tax purposes (I understand refinancing is more expensive for ltd companies for example).

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                  #9
                  Extremely likely CGT will be payable at death ... for example.

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                    #10
                    Originally posted by Conflicted View Post
                    It might be that I am blinkered by the pros of having property in the ltd company for tax purposes
                    That is quite possible. Tax questions are best posed to a tax professional who knows your financial position in full and to whom you have explained what you are contemplating doing and what you hope to achieve by doing it. He will then advise if your plans are wise or achievable and what course of action, if any, you should take and when. Doing something for an immediate tax benefit may not necessarily be of benefit in the long term and tax is not the only consideration when organising your affairs.

                    Comment


                      #11
                      Originally posted by Conflicted View Post
                      I hadn't really thought of disadvantages. You mention selling. I don't intend to dispose of the asset any time soon (ever?). I'be got a bunch of kids here I'm hoping to pass my property onto... What are the others disadvantages I am missing? It might be that I am blinkered by the pros of having property in the ltd company for tax purposes (I understand refinancing is more expensive for ltd companies for example).
                      The tax advantages of property in a limited company are governed by your personal circumstances and you'd not want to share the details over the internet!

                      But it's worth discussing it with a family solicitor or accountant before deciding what to do.

                      For example, any gain in value of the property is taxable as CGT for a private individual, but it's income for a company.
                      So it's going to be taxed at 19% corporation tax (currently) and then further tax is payable as you or whoever extracts the asset from the company.
                      And there's no personal allowance for a company - which is slightly academic if you're hoping for tens of thousands gain, but if it's going to be 20k or less might change the entire calculation.
                      If the gain is reflected in the value of the company, you (or your children) might end up paying CGT on that extraction - or part of it, less any personal allowance.

                      And you definitely need to consider how you're going to get the income and gain out.

                      The company will pay SDLT on the transaction, which can remove the tax benefit for quite some time.

                      If you're planning to pass the property on to children, you'll need to consider how to involve them into the business - because joint personal ownership might be a better option - five people have £60k tax free allowance, for example (based on current values).

                      In a company, your control isn't guaranteed - the children could vote to do things you don't want to, when a trust with personal ownership can be set up to prevent that.

                      You have to consider what happens in all possible structures if you, or a partner or one of the children die, marry, divorce or become addicted to something costly.

                      You would want any wills to align with the plan.
                      And shares in the company are subject to IHT.

                      The company can make tax efficient pension contributions, which is possibly a plus.

                      The migration is going to be costly now and, likely, beneficial in tax over time.
                      But a change in the tax rules could undermine the benefit after a few years - if corporation tax rises for example.

                      The numbers may not work out as you imagine.


                      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                      Comment


                        #12
                        There is liability for cgt to pay on capital gains after sale to your ltd company. So you should take some photos of current condition and get a RICS surveyor to give you a written valuation of current market value ( on the lower side due to no proper bathroom and kitchen ). .

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