Capital Tax Gain - Selling Lease of Business

Dummie_2

Hello There

I'm in the process of selling the lease to my fish & chip shop. I brought it for 63K on 13 Oct 2003 and am now selling it for 80K.

When I purchased the lease the 63K was split (as requested by the seller) Goodwill @ 57K, Fixtures & Fittings @ 5K and Lease @ no value.

My solicitor called me yesterday and asked me how I would like to split my selling price of 80K.

I called my accountant who requested some information before he could do his calculations. He requested I send him a list of all the fixture and fittings to be included in the sale together with their individual values .

Writing the list is easy enough but how do I guess the value? When I put this question to him he told me to write whatever I thought the items to be worth. Is this right? Do I just pluck the figures from the top of my head? Or shall I just split the 5K (the price I paid for the f&f 3yrs ago) between all the items? FYI, I never received such a list or breakdown when I brought the lease.

I then asked him about something I learnt from this site.:D

That is, if a person sells their property where they usually live and then buy another property to live in within a set time, the gains they make on the sale is not subject to capital gains tax. (sorry, I get the basic idea but don't know the correct terms)

The premises comprises of both the shop and a house where we have lived since we brought the lease. We won't be looking to buy another house immediately but am planning to do so within the next 2-3yrs. Does the above apply to us?

My accountant's response was to ask me to supply him with a split of what I thought the house was worth and what I thought the shop was worth and again told me to pluck the figure from the top of my head.

When I purchased the lease, there was no breakdown or split between house and shop.

So the conclusion is that I'm stuck. I have absolutely no idea what I should do.

My accountant has advised me that I have a 8K capital tax allowance. That the total sale price (plus expenses) minus the purchase price (plus expenses). The profit minus 8K will then be liable to captial tax. Is this right? If so, then why did the people I brought the shop from split the value up the way they did? Why not just split it equally between the 3?

Is our income relevant to any of this?

Please please pretty please help.

Many thanks.

Dum

Petmidget

Christ this looks complex, too much info for once

Ok, is the whole sale including flat for £80k? and the whole purchase £67k

If so, forget about it. The gain relating to the flat will be exepmt under your PPR relief.

The remainder of the gain will gain taper relief at 75% leaving less than your personal allowance in all circumstances.

As for a split, anything reasonable as no chargeable gain will arise but be sure to allocate it in similar to purchase, otherwise you have a large gain on say the lease with a loss against the goodwill. Then the complication of having offset them which may be challenged.

The sale and purchase aspect you allude to is rollowver relief and relates to businesses and their assets, you have no need to use it in these circumstances.

Dummie_2

Petmidget wrote:

Ok, is the whole sale including flat for £80k? and the whole purchase £67k
QUOTE]

Sale = 80K. Purchase = 63K. So then taking into account expenses, we are probably looking at gains of around 15K.

Petmidget wrote:

If so, forget about it. The gain relating to the flat will be exepmt under your PPR relief.

Does PPR relief apply to only purely domestic premises. Ours is part commercial part domestic. As I said before, when we purchased there was no split mentioned re how much we were paying for house and how much we were paying for the shop.

Petmidget wrote:

The remainder of the gain will gain taper relief at 75% leaving less than your personal allowance in all circumstances.

Just been reading up on this on business link. Am I correct in saying that because I have held the assets for more than 2yrs then I will gain taper relief at 75%?

Petmidget wrote:

As for a split, anything reasonable as no chargeable gain will arise but be sure to allocate it in similar to purchase, otherwise you have a large gain on say the lease with a loss against the goodwill. Then the complication of having offset them which may be challenged.

The sale and purchase aspect you allude to is rollowver relief and relates to businesses and their assets, you have no need to use it in these circumstances.

So lets conclude.

Say I don't have any expenses. 80K minus 63K = 17K. I can then minus 8K for my allowance = 9K.

Say I then split the 80K 50/50 between house and shop. This will mean 9K /2 = 4.5K. So the 4.5K for the house will come under PPR relief.

The 4.5K for the shop can be deducted by 75% as per the taper relief so that's minus 3,375 so I only have a gain of 1,125 remaining liable for CT?

Or shall I just allocate more to the house. Say 60/40 or 70/30? Is this REALLY up to me? Can I REALLY split it however I like?

WHA

From the info given, there is no capital gains tax - the computations may well be complicated, but that's what your accountant is there for.

The goodwill element is wholly business, so you'll get the full 75% business asset taper relief on that (if you've been there over two full years).

Forget the living accommodation etc - that's a red herring - as long as you sell the lease for the same amount you paid for it, i.e. £nil, then there is no gain, nor loss there and you can safely ignore it.

Turning to the apportionment for F&F, you need to throw the question back to your accountant and ask him what is the tax written down value of the f&f - if you put too high a price on the f&f you will pay income tax and nic on the excess, so you need the F&F to be a low as possible, preferably around the tax written down value. Your purchaser will want as high a price as possible for F&F for them to get tax relief against their income tax and NIC. As long as the price is not a million miles away from realistic market value, you'll have no problems.

So your answer, the F&F is your tax written down value, the lease is nil, and the remainder is goodwill. Simple!

nrsql

These are all questions you should be asking your accountant - that's what he's there for.
As to estimating value - anything will do as long as it is reasonable - by reasonable I mean don't charge £1000 for a lightbulb.
The values can be set (within bounds) to minimise tax so ask what the effect will be. As long as the figures look ok you won't get into trouble.

Dummie_2

WHA wrote:

From the info given, there is no capital gains tax - the computations may well be complicated, but that's what your accountant is there for.

The goodwill element is wholly business, so you'll get the full 75% business asset taper relief on that (if you've been there over two full years).

Forget the living accommodation etc - that's a red herring - as long as you sell the lease for the same amount you paid for it, i.e. £nil, then there is no gain, nor loss there and you can safely ignore it.

Turning to the apportionment for F&F, you need to throw the question back to your accountant and ask him what is the tax written down value of the f&f - if you put too high a price on the f&f you will pay income tax and nic on the excess, so you need the F&F to be a low as possible, preferably around the tax written down value. Your purchaser will want as high a price as possible for F&F for them to get tax relief against their income tax and NIC. As long as the price is not a million miles away from realistic market value, you'll have no problems.

So your answer, the F&F is your tax written down value, the lease is nil, and the remainder is goodwill. Simple!

:j :j :j :j

I think I understand it now.

If purchase was Goodwill @ 57K, Fixtures & Fittings @ 5K and Lease @ no value.

and sale is Goodwill @ 75K, fixture & fittings @ 5K and lease @ no value.

then there will be no gain on fixture & fittings and no gain on the lease.

There will be a gain on the Goodwill of 18K. This minus 75% (185K - 13.5K) will leave me with 4.5K. As this figure is within my capital tax allowance I don't need to pay any capital tax.

Is this right? Does this mean I can forget all about the PPR and breakdown list my accountant requested? Can I just go back to my solicitor and give them the above breakdown?

One more question please. Is capital gain the same as income tax? Do I then pay income tax on this amount? Or do I pay it on the 18K I gained on the goodwill?

Mrs_pbradley936

Capital Gains Tax and Income tax are not one and the same.

WHA

Dummie wrote:

There will be a gain on the Goodwill of 18K. This minus 75% (185K - 13.5K) will leave me with 4.5K. As this figure is within my capital tax allowance I don't need to pay any capital tax.

Correct

Dummie wrote:

Is this right? Does this mean I can forget all about the PPR and breakdown list my accountant requested? Can I just go back to my solicitor and give them the above breakdown?

Yes, you can forget PPR and breakdown. But no, you can't just give them the figures. There is no CGT on F&F - you will have claimed income tax relief on your F&F purchases, so if you sell them for the same amount, and havn't bought any more, you will have to repay the same amount back in income tax. That is why you need your accountant to tell you the tax written down value of your F&F - any more and you pay income tax and NIC - there is no CGT on F&F unless you sell them for more than you paid for them.

Dummie wrote:

One more question please. Is capital gain the same as income tax? Do I then pay income tax on this amount? Or do I pay it on the 18K I gained on the goodwill?

No CGT and IT are completely different and have completely different rules. You pay income tax on trading and other income, you pay capital gains tax on investment profits. You don't pay IT on the profit on goodwill, but would pay CGT if it weren't for the taper relief and annual exemption.

Dummie_2

WHA wrote:

Yes, you can forget PPR and breakdown. But no, you can't just give them the figures. There is no CGT on F&F - you will have claimed income tax relief on your F&F purchases, so if you sell them for the same amount, and havn't bought any more, you will have to repay the same amount back in income tax. That is why you need your accountant to tell you the tax written down value of your F&F - any more and you pay income tax and NIC - there is no CGT on F&F unless you sell them for more than you paid for them.

This is probably a stupid question but here goes anyway. Should ALL accountants know what I mean if I say to them tax written down value? I mean, if this was so then why did he ask me for a breakdown TOGETHER with the value? Should I just give him a list of the f&f's included in the sale, how much I paid for them 3yrs ago and then ask him to value them at tax written down value accourdingly?

WHA wrote:

No CGT and IT are completely different and have completely different rules. You pay income tax on trading and other income, you pay capital gains tax on investment profits. You don't pay IT on the profit on goodwill, but would pay CGT if it weren't for the taper relief and annual exemption.

This leads me to VAT. So many taxes!! At the moment I am not VAT registered. Do I need to pay VAT on any of this?

Thanks WHA. You have been a great help.