Capital Gains question

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Capital Gains question

    I own a block of 4 flats under one title with an interest only mortgage which needs repaying in just over two years time.
    If the lender allows me to create leases, could I sell off one flat at a time, lender taking proceeds until debt is cleared...Would there be any CGT to pay if I'm only clearing cost without profit?

    I'll be speaking to my accountant in the New Year but wondered if others could offer an opinion.

    Thanks

    #2
    There may be a CGT liability under the part disposal rules.

    Mortgages are not relevant for CGT purposes.

    Comment


      #3
      That should be fine with lender. You only pay capital gains tax if you make money - e.g - You buy 4 flats at £100k and sell them for £30k each, you then have a profit of £20k minus any costs for writing leases etc..

      If you only sold 3 then you would still pay capital gains tax as you would of made a profit of £15k - that's how I understand it to work but as you say best to speak to accountant.

      Comment


        #4
        hech123,

        In your second example, you have made more than a profit of £15,000, as you cannot include all the purchase price while retaining one flat.

        Comment


          #5
          I thought it works in the way of - 3 flats cost £75k selling for £90k = £15k profit. They work it on a pro rata basis. Capital gain would = £15k. I may be wrong but I have asked this question to my accountant before as I own a number of freehold blocks of flats and I am sure he answered in that way but it was a number of years ago and I am still yet to split any up!

          Comment


            #6
            Sorry, I mis-read your reply.

            If all the flats had the same value, then the gain would be £15,000.

            Comment


              #7
              Apply following formula to attach a specific purchase value to the individual unit you are selling:
              Sales Price of Unit / (Sales Price of Unit + Current Market Value of Remaining Unit/s)
              X
              Total Purchase Price for All Units

              Then normal CG calculations on sale.

              Each individual sale should attract a proportional amount of CGT.

              Please do not rely on my information and check with a qualified accountant.

              Comment


                #8
                Ad1 is correct I think. Say for instance 3 of the flats were large 2 beds and the 4th was a small studio then this would mean you have to get them valued. My example was basic but to be 100% correct you would have to value or use your own valuations.

                Comment


                  #9
                  I usually recommend that my clients obtain professional valuations for CGT and IHT purposes.

                  Comment


                    #10
                    Thanks all for your replies......it looks as if my original thoughts are out the window.
                    It seems there are only two choices I have to reduce or even avoid the CGT liability altogether... 1. To Emigrate....2. Over a period of time, move into each flat as my main residence until the four are sold.
                    Am I correct or would HMRC view this as evasion, especially as I'd only be moving next door each time?

                    Comment


                      #11
                      Its an argument you would have to convince HMRC of who will likely be concerned you are abusing the system.

                      If you have genuine intentions to live in these flats as your PR for reasons other than tax I would consult an accountant for guidance as to how to substantiate this with HMRC.

                      Comment


                        #12
                        You would have to genuinely move in lock stock and barrel for a period of probably 2 years. Moving to an adjacent address will ring alarm bells at HMRc and I suspect they will reject any claim to PPR. Regards Peter

                        Comment


                          #13
                          I'd perhaps get away with living in one of the flats as my PPR but I agree, my suggestion of moving into each at a time would probably ring alarm bells at HMRC.
                          A few days ago, my financial adviser rang my lender to see if they would allow me to create leases and sell the flats separately. He was told they would not accept this or any part payments. Nearer the time, my adviser suggested I could re-mortgage each flat individually and then sell each at the full market price but this would incur all sorts of expenditure........if they were then registered separately under their own title, would I have to pay stamp duty on each?
                          If I took this route it would allow me a period of time to take advantage of CGT allowance if spread over different years I suppose.
                          I also spoke with an estate agent who told me he had investors on his books looking for this type of property and as a block, the flats could achieve in total as much as one offs.....the advantage of this would be not only achieving market value or thereabouts but I'd still have the rents coming in until completion but if it were me as an investor, I would be looking for at least 15% BMV.


                          Decisions,Decisions!

                          Comment

                          Latest Activity

                          Collapse

                          Working...
                          X