Is there any way of cutting CGT on land

reme-bod

I have owned a plot of land which I bought relatively cheaply a couple of years ago. Now that I've successfully negotiated planning permission I'm looking at selling the land.

I know that I can be exempt CGT if a property is my main dwelling, and as at the moment I'm living in rented accomodation with no other owned properties, is there any way this can apply to a plot of land? (Or do I have to put a caravan there for 6 months and get all my mail redirected - not really a viable option).

Secondly, any profit made would udoubtedly put me into a higher tax bracket, so would I be taxed on it this way if I were to be fortunate to dodge CGT? I've thought of transferring the deeds to my wife - a non earner - prior to selling, but I'm not sure if this is legal or worthwhile.

Any comments appreciated.

Jim

telly-addict

Land in itself cannot be a principal private residence as it needs a dwelling on it, and then only half a hectare of land is considered reasonable. I suspect a caravan wouldn't count ( but as you say, you don't fancy that much!) so you are stuck with a gain.

It is perfectly legal to transfer a share, presumably half, to your wife. I say a half, because the IR cannot query a 50:50 split between spouses. This needs to be done properly, not sure what the legal costs would be, but presumably less than the tax on half the land.

The key thing is the timing - the day before sale to a third party would be a little obvious, a few months or so before should be ok. Then, you get the advantage of her annual exemption and lower and basic rate bands of tax as she is not a higher rate tax payer, so it is worthwhile.

For inheritance tax purposes, presuming your wife was born in UK and has lived here all her life (technically she is UK domiciled) then the transfer is exempt.
You may wish to seek professional advice in calculating the gain, because there will be indexation allowance due (if you bought it before April 1998) and possibly some taper relief.

Also, the transfer to your wife is considered 'no gain , no loss' and she would have a different 'base cost when selling the land to a third party, so professional assistance could be helpful.

I would check whether the costs associated with obtaining planning permission are allowable as 'enhancement expenditure' i.e. they increase the value of the land. Again check with your Chartered Accountant or Chartered Tax Adviser - again their fees should still be less than the tax you are going to save.

Cook_County

Buying land, applying for planning permission sounds like an adventure in the nature of trade, so a trading profit.

This kind of advice is not suitable for discussion forums, you need a solid opinion from someone who has handled similar transactions in the past

telly-addict

Cook_County wrote:

Buying land, applying for planning permission sounds like an adventure in the nature of trade, so a trading profit.

This kind of advice is not suitable for discussion forums, you need a solid opinion from someone who has handled similar transactions in the past

Case law (Leach v Pogson) suggests that the first time someone does this, it is considered an investment and therefore gains, if it is a series of transactions then you are considered trading. It is then possible to look back to the first transaction and class it as trading.

Marson v Morton states that you need to consider the intention at the time of purchase.

No doubt the professional adviser recommended in my first post will also consider s776 ICTA 1988, land transactions.

reme-bod

Cook_County wrote:

Buying land, applying for planning permission sounds like an adventure in the nature of trade, so a trading profit.

This kind of advice is not suitable for discussion forums, you need a solid opinion from someone who has handled similar transactions in the past

So if it's regarded as trade, does this incur different tax penalties, and simiarly, does it open up a whole new can of worms regarding being VAT registered, registered company etc etc etc?

Elaine_Wilson

reme-bod wrote:

So if it's regarded as trade, does this incur different tax penalties, and simiarly, does it open up a whole new can of worms regarding being VAT registered, registered company etc etc etc?

It considered a trade it would be subject to income tax and not capital gains tax. The rate of tax is still 40% for the part above the higher rate band threshold but would be 22% instead of 20% for the bit (if any) that is below.

More significant is that you would lose the CGT annual exemption (currently £8,500) and the benefit of any indexation and taper relief. You may also be liable for national insurance contributions on the profit.

VAT needn't be a problem as transactions in land are usually exempt.

Elaine

djohn2002uk

Put it into joint names, but properly via a solicitor, as I see it, (and this is from experience) you will be liable in this instance to capital gains tax and you will both benefit from £8500 tax free.

reme-bod

Having read the above posts, and done a little research, I've decided that classing it as a trading profit is the most sensible approach, especially as it gives more scope for taper relief.

This does however leave me with more niggling questions...

If I register myself as a sole trader (property developer for instance), can I transfer the land into my trading name without incurring penalties and losing taper relief? Or is it simply a case of telling the taxman that I'm now a property tycoon when it comes to selling the plot?

Secondly, would this affect my current tax position... ie if the profit (a one-off) exceeds 60k, would I have to pay VAT?

I've tried talking to an IFA, but for some reason he seemed more interested in putting me in touch with a stockbroker associate.

TIA

Jim

DavidLaGuardia

reme-bod wrote:

Having read the above posts, and done a little research, I've decided that classing it as a trading profit is the most sensible approach, especially as it gives more scope for taper relief.

This does however leave me with more niggling questions...

If I register myself as a sole trader (property developer for instance), can I transfer the land into my trading name without incurring penalties and losing taper relief? Or is it simply a case of telling the taxman that I'm now a property tycoon when it comes to selling the plot?

Secondly, would this affect my current tax position... ie if the profit (a one-off) exceeds 60k, would I have to pay VAT?

I've tried talking to an IFA, but for some reason he seemed more interested in putting me in touch with a stockbroker associate.

TIA

Jim

VAT has nothing to do with profits. It is a sales tax. Also Stamp duty is levied on land not VAT.

If you are taxed as a trading profit, the tax position would be worse as this would be under schedule D (case I or VI). There is no indexation or annual exemption!

If it can be classed as a business asset, all the better, but since it was not used in a trade or company, is not agricultural land and could not represent shares in a non-investment company then I don't think it can.

reme-bod

Many thanks again. I think a few quid wisely invested in a good accountant is my next step.