Anyone know about Capital Gains Tax on commercial property?
Discussion
Myself and my business partner have seen a commercial property we wish to buy.Its an old (1930's) property owned by 2 old ladies in their 80's and has been in their family ownership since it was built.
For the last 20 years or so it has been rented on an informal basis to somebody who has not spent anything on it and now needs a significant sum spending to make it decent again.(groundworks,asbestos roof replacing on 3000Sq ft unit etc)
It has now become vacant and faced with the cost and agro of getting it up to standard to rent on a full repairing and insuring lease the old ladies have decided to sell.
My business partner and I heard about the property becoming vacant and made a direct approach to the ladies with a view to buy(we are currently renting our current site and want to own something long term).Both parties have taken advice from valuers/surveyors and the figures given are acceptable to both parties so we are now in the final stages of concluding a deal.
The fly in the ointment(for the old ladies at least)is the issue of capital gains tax,and faced with what they would pay if the property was sold in a straightforward sale,they are having second thoughts,and are thinking that instead of selling and paying the CGT they may be better investing that money in improvements and renting again on a long term lease(which would not interest us).
Apart from a basic pension the rent off the property is their only source of income.I was thinking is there any way that the CGT could be minimised or eliminated if we were to sign a contract to say that we were buying 20% per year of the property and buy it over a 5 year period thus allowing the ladies to use their tax free allowances in the forthcoming years.The purchase price would be around £180k.Or is there a better option?We do not have to get a loan or borrow money to buy.
For the last 20 years or so it has been rented on an informal basis to somebody who has not spent anything on it and now needs a significant sum spending to make it decent again.(groundworks,asbestos roof replacing on 3000Sq ft unit etc)
It has now become vacant and faced with the cost and agro of getting it up to standard to rent on a full repairing and insuring lease the old ladies have decided to sell.
My business partner and I heard about the property becoming vacant and made a direct approach to the ladies with a view to buy(we are currently renting our current site and want to own something long term).Both parties have taken advice from valuers/surveyors and the figures given are acceptable to both parties so we are now in the final stages of concluding a deal.
The fly in the ointment(for the old ladies at least)is the issue of capital gains tax,and faced with what they would pay if the property was sold in a straightforward sale,they are having second thoughts,and are thinking that instead of selling and paying the CGT they may be better investing that money in improvements and renting again on a long term lease(which would not interest us).
Apart from a basic pension the rent off the property is their only source of income.I was thinking is there any way that the CGT could be minimised or eliminated if we were to sign a contract to say that we were buying 20% per year of the property and buy it over a 5 year period thus allowing the ladies to use their tax free allowances in the forthcoming years.The purchase price would be around £180k.Or is there a better option?We do not have to get a loan or borrow money to buy.
Personally I think you are trying too hard to keep them happy. Unless the property is an absolute gem and the only suitable one for you within 50 miles then I'd say that it sounds like a lot of hassle for you.
I appreciate it's probably a hard line to take with two old ladies but i'd just ask them to sell it to you outright or move along. 5 years is a long time, what happens if in 2 years circumstances change and either party wants to sell their share.
I appreciate it's probably a hard line to take with two old ladies but i'd just ask them to sell it to you outright or move along. 5 years is a long time, what happens if in 2 years circumstances change and either party wants to sell their share.
Inkyfingers said:
Personally I think you are trying too hard to keep them happy. Unless the property is an absolute gem and the only suitable one for you within 50 miles then I'd say that it sounds like a lot of hassle for you.
I appreciate it's probably a hard line to take with two old ladies but i'd just ask them to sell it to you outright or move along. 5 years is a long time, what happens if in 2 years circumstances change and either party wants to sell their share.
Yes I see where you are coming from.I appreciate it's probably a hard line to take with two old ladies but i'd just ask them to sell it to you outright or move along. 5 years is a long time, what happens if in 2 years circumstances change and either party wants to sell their share.
I have had my eye on the site for 10 years or so now and it meets all the necessary criteria.There are very few similar properties in the area I live,and even fewer available freehold.I dont want to go too far from where I am now,or where I live.My business is established and existing customers probably would not travel if I moved further away.
If I wanted out after a couple of years then there would have to be a financial penalty for doing so built into the contract.
Spreading a transaction over a number of years will not work . HMRC have legislation in place to block those who try to arange an asset sale into chucnks so that the disposal is spread over a number of different tax years.
There will be occasions, however, when an asset may very genuinely be sold off piecemeakl - but is usually fairly obvious whether the sequence of transactions relates to genuine sales or is a device to try and lessen CGT.
There will be occasions, however, when an asset may very genuinely be sold off piecemeakl - but is usually fairly obvious whether the sequence of transactions relates to genuine sales or is a device to try and lessen CGT.
ellroy said:
Gifts, unless inter-spousal, are typically treated as a disposal for CGT purposes as far as I am aware.
Would that mean,for instance,that if I gave one of my residential rental properties to my son then he would have to pay CGT on it?Im not saying you are wrong but that doesnt sound right.The Gain would fall on you, not your son, as you've made the disposal.
http://www.hmrc.gov.uk/cgt/intro/gifts-inherit-div...
http://www.hmrc.gov.uk/cgt/intro/gifts-inherit-div...
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