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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I sold a property in 2003 and net proceeds were £217000

Customer Question

Hi
I sold a property in 2003 and net proceeds were £217000 after sale costs I had paid £30,000 for it in 1995 and incurred several others costs in 1999 of around £5000, I bought some land for £60,000 in 2003 with part of the proceeds and there were costs of around £3000 spent on the land mapping etc. The land is now valued at £167,000 and estimated sale costs of £8500. Can you tell me what sort of CGT should have been due in 2003 and will be due if we sell now please?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

Was the property your main home for the entire period of ownership or was it not a residential property? If it wasn't a residential property, to what use was it out during your ownership of it? Can you tell me which month in 2003 you sold the property.

What has the land been used for during your ownership of it?
Customer: replied 1 year ago.

Hi

The property was a derelict car park when we bought it and had no residence on it. We obtained planning permission in 2002 for developing the car park into 11 houses and sold it in MAY 2003 for 224,000 less costs ie 217,000 While we owned it it was empty and not used for anything except parking the occasional car.

Thanks

Sally

Expert:  TonyTax replied 1 year ago.
Thanks.

You've told me what the property that was sold in 2003 was but not what the land you bought in 2003 was used for, if anything.
Customer: replied 1 year ago.

Sorry The land we bought after for £60,000 is farm land and has been used for farming since we got it. There is no residence or barns It is just grazing ground.

Expert:  TonyTax replied 1 year ago.
Thanks.

You say the land you bought in 2003 was used for farming. Has it been used by you or let to a farmer to graze his livestock?

Can you remember which month in 1995 you bought the first piece of land and which month in 1999 you spent £5,000 on it.
Customer: replied 1 year ago.

We have farmed the land ourselves and grazed our livestock. We have a holding number for the ground and produce accounts each year. I think it was early in the year 1995 and I am sorry I don't know which month we spent the £5000 in 1999, although I think it was summer time so probably July

Expert:  TonyTax replied 1 year ago.
Thanks.

Leave this with me while I draft my answer. It will take a while so please bear with me.
Customer: replied 1 year ago.

Yes that is fine and I only need a rough idea of what the potential gain would be.

Thanks very much

Sally

Expert:  TonyTax replied 1 year ago.
Hi again.

LAND SOLD 2003/04

Net Sale Proceeds £217,000 less cost £30,000 less improvement cost £5,000 less indexation (inflation) allowance from January 1995 to March 1998 £3,042 less taper relief for a non-business asset 7 years £44,740 less annual CGT exemption £7,900 leaves a net taxable gain of £126,318.

Indexation on £30,000 (160.80 - 146.00 / 146.00 = 10.14%. Factors here. Indexation will be less if purchase was not in January 1995.

Taper relief for seven years is 25% discount off net gain after indexation of £178,958. Notes here.

In 2003/04, gains were added to income to determine the tax rate as you can see here. The worst case scenario is that CGT is payable at 40% where the taxable income for that year was £30,500 or more.

CURRENT PIECE OF LAND


If you sold the land in 2015/16 for £167,000, the gain will be £104,000 (£167,000 - £60,000 - £3,000). The first £11,100 will be tax free due to the annual CGT exemption so the net taxable gain will be £92,900.

As the land appears to be a business asset and assuming you own it personally as opposed to a company owning it, you may qualify for entrepreneurs' relief. You can read about that here. If you do, the CGT rate will be 10%. If you don't, the CGT rate will be 18%, 28% or a combination of the two rates depending on the level of personal income in the tax year the land is disposed of.

If the assets were owned by two individuals equally, you need to divide the gains in two and you will each be due your own CGT annual exemption and range of tax bands which may be different.

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.

Many thanks for your help

Expert:  TonyTax replied 1 year ago.
Thanks.

Would you mind rating my answer before you leave the site please.
Customer: replied 1 year ago.

I am sorry I am not sure on your figures as to what roll over allowance you have used as the proceeds of the car park were used in part to buy the farm land? Your answer doesn't sem to show any rollover relief. Sorry if I am misinterpreting this.

Expert:  TonyTax replied 1 year ago.
I'll get back to you on that. I will need to refer to old legislation. Today, you would not qualify for BARR as the asset you sold wasn't a business asset.
Expert:  TonyTax replied 1 year ago.
Hi again.

As is the case now, unless both the asset you sold in 2003 and the one you bought were both business assets there is no business asset rollover relief due. Whilst the farm land is a business asset the car park was not.

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