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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4074
Experience:  FCCA FCMA CGMA ACIS
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We are looking to sell a comercial property at 3.1 mil. The

Customer Question

We are looking to sell a comercial property at 3.1 mil. The net profit deduced by deducting initial costs (as per accounts) is around 1 mil. We expect tax at 28%. However, there is a 420k mortgage redemption. Can this be deducted from profit as costs before tax is paid ?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question. I fear that you will not like my response.

The capital gain is calculated as follows. You need both an acquisition and a disposal price. The acquisition price is the purchase price plus purchase costs plus any improvements eg new windows, central heating installations, internal alterations or extensions, but not routine maintenance. The disposal price is the selling price less the cost of sales, solicitor's and estate agents fees fees, adverising and the like. Take one from the other and you have the gain subject to Capital Gains Tax (CGT) which is levied at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. As you surmise the majority of this will be at 28% having regard to the size of the gain. The question is worded 'We;' if it is jointly held 50/50 then the CGT would be half each. Each person has an Annual Exempt Amount of 11.1K to offset the gain.

You may, and I only say may, be entitled to Entrepreneurs' Relief (ER) which limits CGT to a flat rate 10%. However, Coffin Mew Solicitors, advise:

'one or more assets in use by a business for its purposes at the time the business ceases, for up to 3 years of the business ceasing'

Note the key word 'ceasing;' if the business is comntinuing then ER does not apply, but if you are reinvesting then Roll Over Relief could apply which merely postpones CGT to a later date.

For CGT purposes the mortgage and its redemption are irrelevant. Mortgages do not figure in the CGT regime.

I am so sorry to have to rain on your parade..

Customer: replied 2 years ago.

Thanks. You have not rained on our parade, this is what we thought.

The LLP which hold this company will definately cease trading when this is sold. It is a Doctors surgery and we do not plan to do any more work like this.

From your message am I correct in thinking that in this case we would qualify for 10% ER tax ?

Expert:  bigduckontax replied 2 years ago.

You might indeed, but in view of the large sums involved it would be adviseable to engage a trusted, local professional to fight your corner. A lot of money is at stake here.

Please be so kind as to rate me before you leave the Just Answer site.

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Expert:  bigduckontax replied 2 years ago.

Thank you for your support.