Capital Gains Tax - Commercial property
The Chancellor’s announcement of the new “Entrepreneurs’ Relief” from 6 April 2008 appears to herald a marked change in the tax position of owners of commercial property.
Though the details have yet to be formalised, it seems that unless the property is let to the owner’s business – or to a company in which the owner has at least a 5% shareholding – the minimum tax rate on selling that property will increase to 18%.
Since 2000, anyone owning a commercial property used by an unquoted trading company would qualify for the higher rate of taper relief and could potentially pay only 10% capital gains tax on selling the property after two years.
It seems unlikely that this change will create a false market in such property before 6 April 2008 but there may be steps that can be taken to negate some of the impact of this effective tax increase in the time available.
If you would like to discuss what might be possible, please contact Cathy Corns or me.
hi
can you advise me please.
what capital gains tax would i have to pay if i changed my shop in to part of the house.
thanks
shelley
How much would the capital gain tax be if the property was bought in 1997, and sold in 2008?(The property is in USA, Pennsylvania.) So what would be the percent of the captial gain tax?
Meena
There is not much information given here but assuming that the disposal is after 5 April 2008 and that entrepreneurs' relief is not applicable, the rate of capital gains tax will be 18% on the gain. The location of the property is not relevant, although there may also be USA taxes to consider.
Thanks
David
Shelley
There would be no tax to pay at the time you incorporated the shop into the house. When you come to sell the house, and if it has been your main residence throughout the period of ownership, then the majority of the gain would be exempt from CGT. However, a proportion of the gain attributed to the shop area will be taxable. Since at that time entrepreneurs' relief is unlikely to be available because the business is no longer being carried on in the premises, the rate of CGT will be 18%.
Thanks
David
Hi
My limited company purchased a commercial property in Oct 2001. The property has made a gain of about £500k. Will this gain be charged under taper relief, CGT at 18%, indexation or Corporation tax?
Can the gain be reinvested in a new property without paying CGT or Corporation Tax,
Many thanks
Simon
Simon
Thank you for your comment.
A gain on a property disposal by a company is subject to corporation tax.
The gain is broadly calculated as sale proceeds less cost and enhancement costs and indexation (effectively, an allowance for inflation). Tax will be payable at the company's rate, which is based on the profits for the accounting period - although other factors may affect the amount of tax payable.
There may be roll over relief available but this depends upon several things such as the nature of the company (investment or trading), what the property has been used for, what the new property will be used for, how much of the total proceeds are spent on the new property etc.
Our above comments are necessarily very general in nature and we would suggest that you take specific advice in advance of entering into a transaction of this scale and type.
Thanks
David
HI,
I have a commercial property which was initially purchased in 1998 for use as a restaurant - but has since been used as my only residential accomodation as I sold my house prior to purchasing this property. I am planning to sell the property and would like to know if CGT would apply as this is my only residence, (was not let out to antone and the property was never run as a business) - The property has made a gain of £600K.
Imran
Although you say you bought a commercial property, if it has never been used as a business property by you, and has at all times been your sole main residence, then the gains should be free of capital gains tax under the "principal private residence" exemption.
Thanks
David
Hi,
My wife and I formed a limited company which we funded to purchase a house which we have now developed and improved while using it as our only residence. We now want to sell it and this has to be done through it's owner, our company, which has otherwise not traded during a period of seven years. Will CGT apply at the time of sale.
Thanks,
Bill
Bill
This is a complicated issue and there are various taxes to consider. Without more information, we cannot give a definitive answer but the following matters may be relevant:-
1. If the company owns the property and is making the sale, it will pay tax on any profit.
2. From the facts given, it seems more likely that any profit will be regarded as a capital gain. This may not matter as companies’ profits are taxed at the same rates, irrespective of the type of profit.
3. If you withdraw any profits from the company, there is likely to be more tax payable. The level of tax “leakage” can vary significantly, depending on how this is done.
4. Even if the property has been your principal private residence, it will not qualify for tax exemption on sale, if the company owned it.
5. If a director lives in a property owned by the company, he potentially has a benefit in kind, based (broadly) on the amount that would be due if the property had been let out at a commercial rate. This appears to be relevant here.
6. The VAT position is complicated where the property being developed is being let out, as has been the case here.
These are just some of the points that need to be considered.
This will need careful handling and we would urge you to take advice from a firm with suitable experience and the ability to minimise the overall exposure to taxes and national insurance.
Thanks
David
My husband and I bought a commercial unit in 1988 for £200,000 for the use of our own business. We let it to our own business (a ltd Co) until 1999 when we retired.
Since then the property has been let to another business not connected to us. This is our only form of income (our pension) The lease expires 31 Dec 2011. If we were to sell today say for £300,000 what capital gains would we incur
Pat
The changes to capital gains tax from 6 April 2008 mean that neither indexation allowance (an allowance for the effects of inflation) nor taper relief will be available. Since the property is not being used in your business, entrepreneurs' relief will not reduce the effective tax rate to 10%, so the normal 18% rate will apply.
Assuming that the property is owned 50:50 between you and your husband, that neither of you has used your annual exemption from capital gains elsewhere and that you do not have capital losses to set against the gain on selling the property, you are each likely to face a capital gains tax bill of a little more than £7,000.
Do not forget that the costs of acquiring the property (eg stamp duty and legal fees) are available to reduce the gain, as are the expenses incurred on selling it (such as solicitors' and estate agents' fees.
Thanks
David