Thanks for your question
Can you advise, is the land being sold abroad, your friends land, or his fathers?
Hi - yes its being sold abroad and it's my friends land - thx
Thanks for the clarification.
Then this is NOT a gift from his father, but proceeds from the sale and it cannot be declared as something it is not (which I am sure you can appreciate) and he should not mislead the bank to state otherwise, or this could have huge consequences, for both this mortgage, the property he plans to buy, and HMRC.
And this can easily be discovered - as to the true origin of the money, by both the bank/building society and HMRC. He should just be honest as to where the money has come from.
As your friend is resident in the UK, and remitting this money into the UK, there will be a considered UK capital gain tax position to consider on this sale (this is where an asset is sold for a profit)
This is worked out, by the sale price, less the value at original purchase/acquisition. This forms the initial gain. From this can be deducted the costs to buy and sell (such as legal fees and estate agent fees (or the equivalent in the country of sale)
After the allowable costs have been deducted, then the first 310,600 is capital gain free (as this is the annual exemption allowance) and the remaining gain will be liable to 28% capital gains rate.
Your friend should alert HMRC to the sale once it has taken place, and ensure enough of the sale proceeds are held back to cover the tax due.
HMRC will then issue self assessment tax return after 05/04/2014 for completion (if your friend does not already complete self assessment) and any tax dye is then payable no later than 31/01/2015 (assuming the land is sold before 05/04/2014)
Hi Thank you for your response.
I have a follow up question. The land is actually in the name of his wife who is also resident in the UK for the last 3 years. She is a housewife and has not worked in the last tax year.
I guess the sale of the land will then be chargeable gain on his wife? If yes, given that she has had no other income how will the tax be calculated for her? Also, is the annual exemption above of 310, 600 correct? If that is the case, the value of the land is well below that anyway
I do apologise - I went to bed as my day starts at 5am - would you still like me to respond ?
Thanks for your response
Then the wife will have the capital gain arising - and the annual exemption is £10,600 not 310,600 - I do apologise for the typing error. And as she is a non taxpayer, after the £10,600 exemption she will be charged 18% n the next £33,035 then 28% on any remaining gain.
But she must alert HMRC to the sale.