Selling inherited land abroad and capital gains tax

ramb

INDIA-- INHERITED LAND SALE-- CGT
I inherited some land from my grandfather in 1966 as per his Will and as per the Partition Deed he had made. My name was entered on the Land Record Extract 7/12 (indicates title to the land). In 1985, I made a registered Gift Deed and transferred the land to a registered Public CharitableTrust promoting sports activities. The Land Record title was changed to their name and also was entered as a Trust Property with the Charity Commissioner.
Come 2008, one of my seven aunties appealed to the Land Revenue Court, saying that she also has a share in this ancestral land and that the permission under section 63 was not obtained prior to theGift Deed I made. The land Revenue court upheld her appeal on the ground of not obtaining the sec 63 permission and ordered to remove Trust entree on the Land Record Extract 7/12, ( making the gift deed void – it did not directly mention this). The Trust appealed to the higher court ; but earlier decision was maintained. The trust’s entree was deleted and 9 names (seven aunties,my grandmother and myself – i.e all the descendents) were entered on the extract. This was in 2010. Now my auntie has appealed to the civil court, saying that this was family land and she should be given her rightful share in it. Most probably there will be negotiations among all the claimants and a compromise reached and the Court will give ascent to it, sometime this year. I am hoping to get a 2/3 rd share.
Once the shares are sorted, I am selling my portion(2/3rd) to the Buyer I have found for about £130k.
Now my question regarding UK cgt -- I suppose I was the legal owner of the 2/3rd portion of the land from1966. So my Capital Gain would be selling price – value of my portion of the land in1966. The value in 1966 is not going to be much as most of the price appreciation happened since say 1998.
My contention is this --- It is true I had the ownership and the benefit of the land (to the extent of my portion at least) since 1966 to 2010. However, I did not have the possession , access nor did I derive any beneficial interest from this land, during the period it was with the Trust i.e. during 1985 to 2010 --- 25 years . It would not be fair to tax me for this period.
So out of the 47 year period (1966 to 2013), I had possession and access to enjoy the land for 22 years. So my Capital Gain should be made up of two parts ---1. gain during the period 1966 to 1985 and 2.Gain from 2010 to 2013.

Will HMRC accept this argument. I have read their help sheet CG70230 – Land: legal and beneficial interest in the land.
Sorry for the long post.

grey_gym_sock

firstly, for assets held since before 31 march 1982, the base cost is the value on that date, not the value when the asset was acquired. see http://www.hmrc.gov.uk/manuals/cgmanual/cg16700.htm

re your question: i'm not an expert, but i'd be surprised if you got anywhere with that argument.

sunshinetours

As its been proven (albeit presumably not in UK court) that you didn't gift the land away I can't see anyway that you won't be taxed on the overall gain, although as above the market value will be your base point at 3/82. This may be difficult however to prove although you may have had an idea of value when you orginally gifted in 1985?

I assume you are a UK resident for tax as first point which i am sure you have covered?

ramb

Yes, I am a UK citizen and resident. The land value of my portion at the base 03/1982 was about £10k.
I think I can claim non domicile status for FY 2013-14 and pay tax on remittance basis. But then there is a charge of £30k for non doms and I think I would loose the allowances for that year.

So the fact that I had no possesion or received no beneficial interest from the land during the period 1985 to 2010
is not material, for the cgt purposes. Does not seem fair.
Thanks Sunshine tour.
Any more comments would be welcome.

martinsurrey

The fact that you gifted land that was not yours to gift does not give you a way out of CGT.

You say that you had no beneficial interest in the land during that period, but you did as the gift deed was not valid, so really what has happened is that the charity has had use of your land for free, but it was and always has been your land.

No legal way out of the CGT liability without leaving the UK or going non dom.

ramb

Further complication : This sale in 2013-14 may not happen straight away. The buyer might just give me an advance payment of about £30 k and the rest at the time of sale deed.This might be in 2013/14 or may be pushed forward to 2014-15. Now , when will the uk cgt be charged?
In India, capital gain is accrued when the sale deed happens. Advance payment is not regarded as capital gain in that year.

RetiredInThailand

ramb wrote: »

So the fact that I had no possesion or received no beneficial interest from the land during the period 1985 to 2010is not material, for the cgt purposes. Does not seem fair.

Why not? CGT is a tax on increase in capital value (or on inflation, if you like) and has nothing to do with whether the owner had any benefit or income from the item during the time he owned it.

Now if you want to argue that CGT should only be charged on short-term holdings then I would agree with you. I would like to see CGT at 90% on things owned for less than maybe 3 or 5 years, and 0% for anything owned longer than that, but it still has nothing to do with income which is taxed a completely different way.

ramb

How is an advance payment received for the sale to be concluded in say next financial year treated for cgt purposes.
In India capital gain arises when the sale of the asset takes place.
Any advance payments received earlier( even if it is made in previous tax year) is considered as part of total sale proceeds, in that tax year. You of course pay income tax on the interest received on that amount.
Is this the same in UK.
Thanks retired in Thailand and Martin.

sunshinetours

Legal exchange of contracts is usually the key date here. Assuming its an unconditional contract then that will be the date CGT falls due

Very few contracts of sale are conditional and would need to be something like "only completes if planning is received"

http://www.hmrc.gov.uk/manuals/CGmanual/cg14270.htm