capital gains question

Cook_County

Period.

The reason why the vendor is giving you money is because it is tax deductible to him or her. In your hands this is reduction in your cost (what you have to spend). The principal is long established. For example if you own shares in a restaurant and the restaurant gives you a voucher for a free meal at the AGM then the value of the voucher is a reduction in your cost when you come to sell the shares. Nothing is free...

brantwood150

theGrinch wrote:

brantwood, thats interesting you say if its a cashback on a mortgage its exempt. would you be liable if it was exactly the same amount but from the vendor? I guess leading on from my previous post the vendor would be liable for the difference assuming its not their PPR.

The reason I think mortgage cashback would not affect base cost is that it relates to the financing rather than to the property.

If this were a term of the contract with the vendor that the cost would be £150k but that there would be a return of cash by the vendor of £20k then I think your base cost would be £130k.

However, if the property was worth £150k in current condition and the "cashback" was a contribution towards a specified non-capital cost that the purchaser would be incurring (e.g. something like putting up new fences on the boundary, or clearance of an overgrown garden) then I think it is arguable that it does not impact on your base cost, which would remain at £150k.

brantwood150

Cook_County wrote:

Period.

The reason why the vendor is giving you money is because it is tax deductible to him or her. In your hands this is reduction in your cost (what you have to spend). The principal is long established. For example if you own shares in a restaurant and the restaurant gives you a voucher for a free meal at the AGM then the value of the voucher is a reduction in your cost when you come to sell the shares. Nothing is free...

Not really my area, so apologies if I'm missing something obvious, but that's the first I've heard of this. How is this principle established?

theGrinch

Cook_County wrote:

Period.

The reason why the vendor is giving you money is because it is tax deductible to him or her. In your hands this is reduction in your cost (what you have to spend). The principal is long established. For example if you own shares in a restaurant and the restaurant gives you a voucher for a free meal at the AGM then the value of the voucher is a reduction in your cost when you come to sell the shares. Nothing is free...

same here. Ive not heard of this principle as yet.

Cook_County

HMRC's capital gains manual says the following at paragraph 50774:

"Privatisations

Instead of receiving bonus shares taxpayers may have chosen to receive vouchers which can be set against bills received from the privatised company. There is no tax liability on the receipt or use of these vouchers. However, for capital gains purposes the acquisition cost of the shares on any later disposal is reduced by the amount of the vouchers received."

This is HMRC being pragmatic because the value of these vouchers would have been so low.

With the amount under consideration here, HMRC may seek to tax the lump-sum to capital gains tax as a capital sum derived from an asset.

I would assume that the vendor (or morgtage lender) would have taken tax advice before doling out such a large slug of cash (eg to find out if they should have withheld tax) so it could well be wise to ask the person who is paying the money out...

brantwood150

Cook_County wrote:

HMRC's capital gains manual says the following at paragraph 50774:

"Privatisations

Instead of receiving bonus shares taxpayers may have chosen to receive vouchers which can be set against bills received from the privatised company. There is no tax liability on the receipt or use of these vouchers. However, for capital gains purposes the acquisition cost of the shares on any later disposal is reduced by the amount of the vouchers received."

This is HMRC being pragmatic because the value of these vouchers would have been so low.

Thanks for the clarification Cook but this is not the same as reducing the base cost of shares because you receive some free meal vouchers at the AGM.

The above refers to taking vouchers instead of bonus shares, which is different. If the vouchers are in lieu of bonus shares then the shareholder has effectively seen the value of their remaining shares reduced (due to the dilution effect of a bonus issue on the value of each share) and taken something of value (i.e. the vouchers) in respect of that reduction in value.

Strictly this is a part disposal but, as you say, the Revenue have taken a pragmatic approach to dealing with it due to the amounts involved.

Receiving restaurant vouchers at the AGM would not lead to a reduction in base cost. There is such a thing as a free lunch