Is tax due on a buyout fee for surrendering my regulated tenancy?

MacSue

My landlord is thinking of selling my flat and has offered me a sum of money to vacate the property where I have a regulated tenancy. I was already considering moving for personal reasons so am seriously considering doing this. I'm struggling to find decisive answer to the question of whether that money would be taxed.

I've been told by a friend's accountant that it would count for CGT but that, as I was giving up my primary residence, it would be exempt. I've also been told it wouldn't because it is similar to a redundancy payout.

I am trying to buy a property but it's hard and so I am trying to push for more money to make the figures work and knowing whether I would have to lose 20% of it is very important. 

They are currently offering £30,000 which by rough estimates is just under a third of the uplift they get for vacant possession. My tax situation is that I have a larger state pension as I didn't take it for 10 years, so I already pay tax on my pension that is above the personal allowance.

Any thoughts? Anyone been in this position? Have experience of accepting a payment to forego a regulated tenancy? Are there drawbacks I haven't thought of?

MacSue

My landlord is thinking of selling my flat and has offered me a sum of money to vacate the property where I have a regulated tenancy. I was already considering moving for personal reasons so am seriously considering doing this. I'm struggling to find decisive answer to the question of whether that money would be taxed.

I've been told by a friend's accountant that it would count for CGT but that, as I was giving up my primary residence, it would be exempt. I've also been told it wouldn't because it is similar to a redundancy payout.

I am trying to buy a property but it's hard and so I am trying to push for more money to make the figures work and knowing whether I would have to lose 20% of it is very important. 

Any thoughts? Anyone been in this position? Have experience of accepting a payment to forego a regulated tenancy? Are there drawbacks I haven't thought of?

Brie

I'm boggled to think that an accountant has told you CGT would be applicable.  You didn't buy the place (unless I've missed something) so you can't be selling it for a profit, so no CG.  And not sure why there's any relationship to redundancy.

I would have thought that it is compensation to pay for the inconvenience of you having to move at what might otherwise be a time you would rather not be moving.  I am not aware of needing to pay for compensation.

Happy to be corrected on any errors here of course.

Meanwhile - you want to buy a place but may be stuck for a while.  So you'll have to move...where?  Is there other places at the same rent available easily?  Move home with parents or couch surf?  Would the money on offer get eaten up by moving twice and paying for higher rent in the meantime?

MacSue

Brie said:

I'm boggled to think that an accountant has told you CGT would be applicable.  You didn't buy the place (unless I've missed something) so you can't be selling it for a profit, so no CG.  And not sure why there's any relationship to redundancy.

I would have thought that it is compensation to pay for the inconvenience of you having to move at what might otherwise be a time you would rather not be moving.  I am not aware of needing to pay for compensation.

Happy to be corrected on any errors here of course.

Meanwhile - you want to buy a place but may be stuck for a while.  So you'll have to move...where?  Is there other places at the same rent available easily?  Move home with parents or couch surf?  Would the money on offer get eaten up by moving twice and paying for higher rent in the meantime?

Thanks for your quick response. Good to hear you're confident no CG. I think your thought about compensation is why it's similar to redundancy - which is another sort of compensation for no longer having a job I guess and buying time to find another one. 

I am hoping to buy somewhere and not move out until exchange has happened. I'm not prepared to agree to a relatively short timescale though as conveyancing can take a long time and the last thing I want it to do is couch surf! As regulated tenancies date back to 1989, anyone with one is going to be older so definitely not moving with parents. I don't want to be homeless! 

chanz4

you dont own so now capital to gain on, no tax either

Myci85

Can't advise on tax implications, but I do wonder how easy it will be to tie in buying a place with your landlord's given date to vacate so you get the payout. I'm currently in rented and have been ready to buy since January, once purchase fell through in April, next property we are about 12 weeks in to the process and were hoping we might be looking at August/September date to move in, but the vendors are now on their 3rd attempt for onward purchase, we heard this week they'd pulled out of house number 2, so the clock has effectively restarted again. So many things to go wrong with the buying process before you reach completion. 

MacSue

Myci85 said:

Can't advise on tax implications, but I do wonder how easy it will be to tie in buying a place with your landlord's given date to vacate so you get the payout. I'm currently in rented and have been ready to buy since January, once purchase fell through in April, next property we are about 12 weeks in to the process and were hoping we might be looking at August/September date to move in, but the vendors are now on their 3rd attempt for onward purchase, we heard this week they'd pulled out of house number 2, so the clock has effectively restarted again. So many things to go wrong with the buying process before you reach completion. 

Thanks, you make a good point. They haven't given me a time line at all. Mostly I'm looking at chain free places but things can go wrong and I also pulled out of a purchase in the past for good reason but it would have been tricky if I'd been in this situation. There's a chicken and egg too - can I buy with this extra money or not! It makes a big difference to what I can afford. I don't want to make myself homeless and putting my belongings in storage would certainly deplete that money. It's a tricky one to get right.

YoungBlueEyes

This might be a bit naughty, but I'd keep my mouth shut about already thinking of buying your own place and take the bribe 'buyout fee'. It should make the landlord a little more patient if you have holdups further down the line if he thinks he's shouted "jump!" and you've said "how high?"...

The next questions are - how much is he offering and is it reasonable? Sounds like he knows what you've got (security wise) so it's good he's offering money. Just make sure it's plenty because you're giving up a lot.

marycanary

I suggest you ask for 1/3 of the uplift in the value with vacant possession compared to the value with a regulated tenant. Perhaps you should start at 1/2 the additional value to allow your landlord to negotiate you down.

GDB2222

I don’t think you can rely on information on the forum, anyway, but there is a board called Cutting Tax where some more knowledgeable folks contribute. Tax is highly technical, depending on the letter of the law, not the spirit, and you might be better off asking there.

Out of curiosity what percentage of VP value is your landlord offering you to vacate?  Assuming that the LL bought years ago, he must have a major capital gain, and he must be looking to sell before the autumn budget, which is forecast to push up CGT rates dramatically. You may have a lot more leverage than you think. 

MacSue

GDB2222 said:

I don’t think you can rely on information on the forum, anyway, but there is a board called Cutting Tax where some more knowledgeable folks contribute. Tax is highly technical, depending on the letter of the law, not the spirit, and you might be better off asking there.

Out of curiosity what percentage of VP value is your landlord offering you to vacate?  Assuming that the LL bought years ago, he must have a major capital gain, and he must be looking to sell before the autumn budget, which is forecast to push up CGT rates dramatically. You may have a lot more leverage than you think. 

Thanks for your very helpful suggestions! I will post on the Cutting Tax board and see what that produces. The flat has not been valued, my local friendly estate agent has suggested it could be £100,000 difference but that's without seeing it. They have also offered to sell it to me or someone else I suggest but won't come up with figures. They say that they're happy for me to organise a valuation and refer anyone interested to the appropriate person. I was going to get this friendly agent to value and he says he may have a client that would buy and, in tandem, sign a contract to give me more than the landlord. I had decided not to go down this route as it seemed long with a potential for lots to go wrong but maybe I'll see if he would do a valuation at least. 

I've been offered £30,000 as final offer and am trying to push for more still. I've been struggling to think of levers to pull and maybe your info on the autumn budget is useful!