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bigduckontax
bigduckontax, Accountant
Category: Tax
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On a freehold commercial property purchased prior to April

Customer Question

On a freehold commercial property purchased prior to April 1965 for £5000 and valued now at £270,000 is it possible to calculate the gross capital gains tax liability on sale ?
(disregarding personal allowances)
I understand the purchase price valuation should be rebased to 31/03/82. Nationwide's online valuation calculator gives an approximate 1982 value of £36,650, although this is residential property. Possibly there is extra relief because the purchase was in 1965 ?
Can a ballpark figure be calculated ?
Thanks
Steve
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Steve, I'm Keith and happy to help you with your question.
You are correct in your surmise that as you have a pre 1982 purchase any capital gain is re-based from 31/03/1988 values.
Working on your ball park figures, and you should obtain a commercial pricing as at the re-base date, the position is as follows.
Acquisition price is say 36.7K, disposal price 270K; gain 233.3K. Remember that selling costs can be deducted from the disposal price, this will help a little.
This gain will be taxed at 18% or 28% or a combination of the two rates depending on the owner's income including the gain in the year of sale. Worst case CGT is say 65.3K. If however the owner is a limited company CGT does not apply at all and the gain merely forms part of the company's profit in that year.
I do hope I have thrown some light on your question.
Customer: replied 2 years ago.

Thank you Keith

You said "You are correct in your surmise that as you have a pre 1982 purchase any capital gain is re-based from 31/03/1988 values." which I assume is a typo?

I assume you arrive at the £65.3K figure without deductions allowances etc, which I can add in when income is known. Please confirm.

The freehold was purchased prior to April 1965, which I understood attracts other relief. Are you aware of anything further ?

Regards

Steve

Expert:  bigduckontax replied 2 years ago.
You are correct, it was a typo!
Personal Allowances apply to Income Tax and reduce your exposure to that tax. The gain is then added CGT liability to be calculated. From your capital gain you do have an Annual Exempt Amount, currently 11K to offset any gain.
Pre 1965 capital gains were not taxed at all, but that is irrelevant to you as all gains were re-based to the 1982 value.
Customer: replied 2 years ago.

again Keith

So I should deduct the personal allowance from the £65.3K figure you have provided ? Just making sure.

Actually the freehold is jointly owned between my parents-in-law which I believe allows two x £11k allowances. Is this correct ? Of course their other incomes will be a factor but I'm just trying at the moment to visualise roughly what amount to put aside.

Finally (sorry Keith I'll make this the last) I can hunt around online approximate commercial valuation as at 1982 but if you happen to know of one I would be grateful.

Thanks

Steve

Expert:  bigduckontax replied 2 years ago.
Well you have it right nearly. You have to divide the gain by the total number of individuals holding the freehold. Each individual then has a gain from which can be deducted an 11K AEA each.
You could use official inflation indices to assess a value or ask the District Valuer, an HMRC official, ; that is what they are there for!
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Expert:  bigduckontax replied 2 years ago.
Thank you support.