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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15956
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Partnership - 2 partners. Have Commercial retail shops let

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Partnership - 2 partners. Have Commercial retail shops let out. Bought one for £65000. Value now £165000. Tenant wants to buy. What is CGT position? Can we get roll over relief if we reinvest?
Hi. Where in your tax returns do you disclose the income from the letting of commercial property? How many shops do you let?
Customer: replied 1 year ago.
Partnership accounts. 3 shops let
Thanks. Does your answer mean that a partnership tax return has been submitted to HMRC each year since the business started which would mean you would have been charged Class 4 self-employed NIC as well as tax or has the rental income income simply been divided between you and reported as rental income in the rental pages of your personal tax returns?
Customer: replied 1 year ago.
Reply sent last night but not on trail. Rentals received into partnership and Partnership accounts lodged each year to HMRC. Partners 50/50 split of profits..... So if profits in total are say £60,000 and rental within that £20,000 - partners would get £10000 each in rental (which declare that elenent as no Class 4 on tax returns?)
Thanks. I still don't know whether you have paid Class 4 NIC on your respective shares of the rental income which you would do it it was a business. Generally, rental income is not business income, it is investment income and not subject to Class 4 NIC. What you would be asking for if you wanted rollover relief is to be treated as a business for that purpose but not for Class 4 NIC purposes or having your cake and eating it to use a widely used phrase. A tax case a few years ago decided that incorporation relief (S162 TCGA 1992) which rolls over a gain could be claimed for transferring the rental of a house into a company from ownership by individuals, wrongly in my opinion, thereby deferring any CGT until a later date when the shares in the company are sold. This does not apply to the reinvestment of the disposal proceeds of property into another property unless that property is either a furnished holiday let or a property which is used in the owner's business and the new asset is a furnished holiday let or a business asset used in the owner's business or a business purchase itself. Take a look at the notes here and here. You might think that you are running a business and that you should try to claim rollover relief but as things stand, I don't see much cause for optimism. I hope this helps but let me know if you have nay further questions.
Customer: replied 1 year ago.
HiThanks for that.We did not pay Class 4 on the rental income. Partnership is 2 partners - husband & wife. Each declaring share of rental on individual tax returns. Asset is held in Partnership accounts.From what you say - if investment - which by virtue of the fact that property has been long term on the rental market - it is deemed an investment? Thus No Roll-Over Relief is available as no Class 4 paid on the rental?We traded (retail) in this property for first 10 years out of the 20 years of ownership - i.e. 10 years on rental market. Given the Cost of £65,000 - possible sale of £165,000 (net of selling fees, etc). There appears no indexing or whatever relief on the Cost base. Is the CGT calculation £165,000 minus £65,000 = Gain £100,000 - e.g. £50,000 gain taxable on each partner? Chargeable at whatever current rates.Any other allowances to reduce liability?Thanks again.Hugo
Even if you had paid Class 4 NIC, HMRC would not necessarily accept that the rental partnership was a business in which case you would apply for a refund of the NIC. I once queried why a new client was declaring rental income as business income during an HMRC enquiry and got over £5,000 in Class 4 NIC repaid. There is no indexation or relief for the fact that it was an asset used by you in business I'm afraid. The same reasons I gave for rollover relief not being available apply to entrepreneurs' relief not being available. The only allowance you will get if a claim to rollover is not made or fails is the annual CGT exemption of £11,100 that each individual has. CGT is charged at 18% or 28% or a combination of the two rates depending on the level of the individual's income level. Look here for information on how to work out your CGT rate.
Customer: replied 1 year ago.
HiThanks for that.Looks like we will have to hold on to the property in the hope that legislation will change or we die!.It is disgraceful that no indexing exists on the cost from 20 years ago.Now have a clearer picture of where things stand.Thank you.Hugo
Thanks. As a matter of interest, taper relief and indexation relief were done away altogether with from 6 April 2008 because the CGT rate was reduced to 18% from 40%. Would you mind rating my answer before you leave the site please.
Customer: replied 1 year ago.
Hi,Thanks for that.One final thing!.Understand - If we sell now - Capital Gain Position = £165,000 less £65,000 =£100,000 less 2 x CGT Allowance £22200
= £77800 @28% = Capital Gains Tax £21,784But, if we transferred (or sold) say 50% of ownership of this retail unit, say now, to our son & daughter (25% each) - thus making 4 'owners' joint sharing - What is CGT position?In this current tax year? - On 2 existing joint owners - Is it computed as 50% Cost (£65,000) from 50% market value (£165,000) - i.e. £50,000 Capital Gain in tax year 2015/16 - thus utilising the CGT Allowance x 2 @£11100 - total £22, 200 - i.e. 27,800 ? - Capital Gain @ 28% =£7784Idea would be to then sell to Tenant within the next 2/3 years say at same Market Value £165,000 - utilising another 4 x CGT Allowance (if need be) - and a higher Cost base to the 2 'new' joint owners of 50% of current Market Value.Original 2 owners joint - Capital Gain 50% of net proceeds of £165,000 = £82500 less Original balance of Cost £32500 - = Capital Gain £50,000 but in later tax year. CGT £50000 less CGT Allowance £22000 = 28000 @ say 28% = CGT £ 7840Additional 2 owners joint - 50% of net proceeds = £82500 - Cost £82500 - Capital Gain = NILTOTAL CGT payable in this scenario £7840 + £7784 = £15624 - saving CGT £6160 (against £21,784 if we do not transfer title)Appreciate this is a 'broad basis' position and other factors i.e legal costs, inheritance tax, etc have to be considered.However, Is this a feasible/allowable option?Thank you.Hugo
If you transferred a share of the unit to your son or daughter, you would be treated as having sold a share to them now at the open market value of that share as you are "connected" for CGT purposes. You would still have a gain.
IHT would also be an issue.
Customer: replied 1 year ago.
Thanks Tony Tax.That is what I thought. Appreciate we have to disclose transfer for CGT - as set out in example.Sometimes when trying to log into your Answer - it will not link - BT page saying website is not available. Looks like the http is the issue. Same happened on both PC and iphone! yesterday & today. Weird!You have been very good!Thank you.Hugo
Thanks. Would you mind rating my answer before you leave the site please.
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