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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5143
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I have a property (property A) which I purchased 19 years

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Hi, I have a property (property A) which I purchased 19 years ago. 3 years ago I bought another property (property B) which I moved into and then rented out property A. I am now thinking that I will hold property A for the long term as the rental income is good. My concern is CGT on property A when I eventually sell it. At the moment if I sell at market price the capital gain would be nil due to PPR relief while I was living there and Private Letting relief which would cover the gain apportioned to the period the property has been rented. The problem is that because there is such a large gain accrued, the longer I hold the property for the more that massive accrued capital gain starts to be taken into the CGT calculation. What I am thinking is to sell the property now at market value to a company I will set up which will effectively reset the accrued gain to zero. When I do then sell the property there will be corporation tax to pay on the increase in value but only on the increase since the company bought the property. Would this plan work or is there some tax issue in selling such an asset to a company that i own 100% myself ?
Hello and welcome to the site. Thank you for yourquestion. There is no tax issue in selling an asset to a company that you own 100% yourself. Any gain in the future would be reported as capital gain in the books of the company and this would be taxed at CT rates. You are correct in your thinking that you realise the gain now and mitigate CGT by claiming PRR and letting relief. I presume, when you say sell the property to the company,you mean there will be a corresponding director's loan in the balance sheet unless the company is going to raise finance to cover purchase price. You should be mindful of SDLT payable by the company on purchase of residential property. More information on this is covered here I hope this is helpful and answers your question. If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.
Customer: replied 2 years ago.
Thanks for the quick response. Yes I am thinking that there would be a directors loan for the full amount of the purchase price on which I would charge interest of say 5% which would be reasonable for an unsecured loan. This would be more than the rental income so the company would build losses over the years. When I do sell the property in say 10 years time, on the one hand I will have a taxable gain of say £50k and on the other hand the company will have accrued losses of say £25,000. To what extent can I offset such accrued losses against the capital gain?Re the SDLT charge I am thinking probably better to take the hit on that now rather than let past property value increases work their way into the CGT calculation in the future.
Thank you for your reply. You can set off trading losses against capital gains for CT purposes.More information can be found here (an article by my accountancy body) I hope this is helpful and answers your question.
Customer: replied 2 years ago.
Final point to clarify - can I offset accrued trading losses against a capital gain or just those trading losses incurred in the year of the capital gain ?many thanksAlan.
Alan, thank you for reply.
They would not be accrued trading losses but actual losses carried forward and you would offset them against the profit in the year that gives rise to capital gain.
I hope this is helpful. and other Tax Specialists are ready to help you
I thank you for accepting my answer.
Best wishes