CGT .. What is a Business Asset

space_trooper

I have just discovered the term Business Asset with regard to CGT and notice that it could save me some money if it applies to me. Thing is I cant fathom it out. I have a third share in a partnership which was established in 2005 with the purpose of combining cash to enable us to buy a piece of land and build an industrial unit, which was subsequently rented to another company. The partnership also bought another property, a house, which is also rented out.

I now want to sell my share of the partnership to the 2 remaining partners, who are happy to buy my share.

Does my share of the partnership count as a business asset or not ?

Thanks

Elaine_Wilson

I'm not fully up to speed on the new entrepreneurs' relief but it seems to me that if you do not have an interest in the company carrying on a trade from the premises you will not be able to claim the relief.

(The business asset taper relief was abolished from 5th April 2008.)

space_trooper

I've done some further reading up on it and I agree that it seems unlikely I will get any relief other than perhaps 5 or 10 % for the length of time of the investment.

I had originally resigned myself to paying the full CGT in any case. Somebody else has suggested that since the original money put into the partnership was jointly owned between myself and my spouse I might be able to claim 2 lots of CGT allowance on the proceeds. I'm not too hopeful about that either though.

MrBeans

Look on the bright side, CGT is only 18% now.

Pennywise

As Jimmo quite rightly says, the old CGT regime with taper relief is dead and buried and now completely irrelevant to any asset sold after 5/4/08.

The house isn't a business asset.

As the new entreprenneurs relief rules follow the old retirment relief rules as to what constitutes a business asset, and not the more generous taper relief rules, which as I have said are now dead and buried, your land/industrial unit won't qualify as a business asset as you're not running the business from it - someone else is as you have rented it out. If you were running your own trade from it, then yes, it would have qualified.

Therefore you are looking at CGT of 18% on the profits, less the annual exemption.

If time permits, you can transfer half your share to your wife. Then for a short period, she will be liable for tax on her share of rents received. Then when you come to sell it to your "partners", you can use her annual exemption as well. Just a couple of warnings. Firstly, it will cost you to transfer half your share to your wife and you will need a solicitor to do the conveyancing etc. Secondly, you have to allow a reasonable amount of time between transferring your half to your wife and the sale to your partners. If the contracts are done together, or too close, the taxman could "see through it" and ignore the transfer to you wife, charging all the tax on you instead.

I really do think you need to see a specialist tax accountant and a solicitor before you think of taking things further.

space_trooper

Jimmo and Pennywise, thanks very much for taking the trouble to help me.

At the end of the day if I end up paying 18% on my profit I can live with it. Anything less is a bonus.

The partnership consists of myself and 2 other guys not related, so 3 individuals who each put in about £25k about 4 years ago. My £25k did belong to me and my spouse and although she was not written in as a partner I wondered if she might be able to claim back something, even if I simply gave her back her half of the original money therefore reducing my gain. But maybe not.

The money was used to buy a plot of land and build an industrial unit which the other 2 guys rented under a different business partnership to run their business.

They are doing fine and have no intention of moving out. The rent they paid was low, simply because I'm a good guy and let them off with a low rent. None of us has received any income from the partnership, because it doesnt make anything after paying loan interest.

Now the time has come I have asked them to buy me out. We had the place valued and totted up the assetts and took away the liabilities and came up with a value of around £230k... we agreed a figure of £74k to buy me out.

So £25k in 4 years ago, £75k out now. Profit £50k, less allowance of £9k = £41k CGT @ 18% = £7380 or thereabouts, am I correct.

or am I way off ?

The 5% to 10% allowance I mentioned before, I read somewhere that non business assets attracted an allowance depending on how long they have been held, 3 years gets you 5%, 4 years gets you 10%. I don't know how this works though. I think you reduce the gain by the percentage, so in my case £50k less 10% = £45k less personal allowance of £9k = £36K cgt @ 18% = £6480.

I may well be confusing this with the old taper relief system as I cant find the link I was reading previously.

space_trooper

Jimmo thanks for that.

I was subjected to a massively expensive and unfair/unjust enquiry by hmrc a few years ago, and have no interest in getting involved with the legalised criminals that they undoubtably are. Last time I ended up selling my house to pay their extorsion and my life has never returned to normal since it.

Bearing this in mind I will simply pay the full cgt and be done with it.

space_trooper

Your dented feelings are I would say minor compared to the anguish the HMRC put me and and my family through for no good reason. I too was a civil servant for over 20 years. I reported internal fraud and as a result lost my job. For a few years I tried various things, but my wife and I ended up running a weekend market stall which didnt make that much. However HMRC decided to do an inquiry which lasted over 5 years. At the end of it they hit us with a bombshell demand for £120,000... from a market stall.... hahaha. By this time though both myself and my wife were at our wits end. I contemplated ending it all. We decided to take the case to court and at the eleventh hour HMRC reduced the demand by half. It semed the easist thing to do was accept, so we sold our much loved home and moved to an ex council house, where we are now.... the proceeds of the sale went to the tax inspector. His name by the the way was the same as my ex boss in the civil service who got sacked after the fraud was proved that I complained about in the first place.

Strange how things work out. Making this money on the back of this project sort of gets me back to where I was before all this !!!! started.

So, I'm sorry but I have no sypathy for any tax inspector. As far as I know they just make stuff up and take no account of anyones feelings or listen to anything which might reduce the amount they are trying to screw out of decent hard working and honest people.

johnllew

How ungrateful. You accept advice given in good faith from a former Inspector of Taxes and then describe him and his ilk as "legalised criminals" who "just make stuff up". I'm sure there are some dishonest taxmen but imagine there is a far greater percentage of dishonest market traders; it sort of goes with the territory.

Your tirade tends to undermine your claim of innocence; I know I would not have handed over £60k to the Revenue if there was no basis for their claim. No court of justice in this country would have found you guilty of evasion if there was no evidence to support it.

space_trooper

I understand what your saying and I do appreciate the advice given. I'm just saying that my experience with hmrc is not a good one. There is a rule book but even experts cannot guarantee a certain outcome. The situation we faced after 5 years of intense investigation was too much to bear and we gave up. I can promise you I did not owe that sort of money. In my current situation I will pay the full amount of tax rather than go up against the system again, even though I think I have a fair claim to pay less. But notice that even Jimmo the tax man cannot guarantee a favorable outcome. It sort of proves my point about how unjust the system is.

I have thanked Jimmo and others for their responses. I am grateful to them, but I have still been shafted by hmrc and I don't feel good about them in any way.

I saved the government millions by exposing fraud and got no help or thanks whatsoever.