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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4199
Experience:  FCCA FCMA CGMA ACIS
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Hello, I am a self employed individual that has recently received

Customer Question

Hello, I am a self employed individual that has recently received a cash sum as a consequence of the sale of some land that I owned jointly with 3 other members of my family. My family are farmers and whilst I retain a 30 something % interest in the business I am not an employee of the company. The land was an asset of the individuals and not the business. Two of the other three individuals are 78+ years old and would not wish to consider a long term investment. The other is younger (50+) and is a shareholder and employee of the business. The individuals have received a small amount of rental income over the years as the business has made light use of the land that we have sold. I am aware of EIS options and the benefits and pitfalls of such. As it stands right now, I appear to be looking at a CG payment of £40K+ and it would be lovely if this could be minimised through tax efficiency in some way
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

Well, not quite; the CGT Annual Exempt Allowance for 14/15 is 11.1K! However, if you received the cash sum in the 13/14 tax year which, from your question, appears likely then for 13/14 it is indeed 10.9K. However if you also received an element of the rental all is not lost on the CGT front; did you share in this largesse?

This information is needed before I can fully give you an answer on this matter. I also require the gain made, that is the original cost of the land plus purchase costs including Stamp Duty and the sale price less sale costs.
Customer: replied 3 years ago.

Yes, I received a small payment annually in respect of the business use of the land. The business is growing watercress and routinely the beds are cleared and all water+silt removed. This was pumped over to the field where the silt would settle out and water drain away, all very interesting!


The sale of the land generated four shares of approximately £193K after expenses. The value of the land at original transfer was £50k, which I have assumed would also be split 4 ways, thus the net gain to me would be £180,500 (£193K-£12.5K). The payment occurred in the last week so I have assumed that the allowance would be £10,900 leaving CG tax to pay on the remaining £169,600. Does that help?


 

Expert:  bigduckontax replied 3 years ago.
Please give me a few moments.
Expert:  bigduckontax replied 3 years ago.
Sale price is 193K. Purchase price was 50K. Gain thus 143K divided by 4 leaves you with a gain of 35.75K. Take off AEA of 10.9 leaves 24.85K liable to CGT less Lettings Allowance (LA) of up to 40K. Thus with LA you might well escape CGT altogether. Were any CGT tax due this would be levied at 18% or 24% depending on your income, including the gain, in the year of sale.

You would be well advised to seek advice form a local, trusted accountant to negotiate with HMRC on this exceedingly complicated tax.
Customer: replied 3 years ago.

Sorry to confuse, the £193K was the value of each individual share and not the total. Re-working those numbers suggests that my quarter of the sale (193K) less my quarter of the initial cost (12.5K) results in a gain of £180,500. Take off AEA of 10.9 leaves £169,600. Even with up to 40K of lettings allowance (and it was considerably less than £40K) I suspect that I am still exposed to a potentially hefty CG bill :-(


 

Expert:  bigduckontax replied 3 years ago.

I regret that you are and there is very little you can do to abate the tax. Roll-over Asset relief is not available for this sort of transaction, the land must be used for a trade or business, you could try, but in my opinion HMRC would cast a very jaundiced eye over the usage. The only consolation is that you have made and realised a gain. CGT is a very nasty tax which can creep up on one unexpectedly. I advised on the tax a couple of yours ago for an individual where the re-acquisition of his own property was going to incur a 50K tax bill, gulp! He had agreed with the owner, a relative, to pay that relative's CGT.

bigduckontax and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

It is much as I suspected though I thought it had to be worth asking, just in case!


 


Kind regards


Richard Scales


 

Expert:  bigduckontax replied 3 years ago.

As I said it is always worth a try! Thank you for your support.