Capital gains tax rate on commercial property sale?

[wax lyrical]

Some advice needed please!

What would the CGT rate be for a retired GP (landlord) once he gets his property back from the current (tenant) GP and sells to a private individual for residential purposes?

Assume the landlord retired from the practice 2 years ago and has been receiving rent from the tenant GP since then (reimbursed by the NHS).

There is no lease agreement in place however, between the tenant GP and landlord. The landlord is trying to force the GP to leave the property so that it can be sold, but this is proving challenging!

Prior to retiring, the landlord GP worked in the practice full time for 30 years.

Is it still considered selling a 'business' property? GP's are technically self-employed contractors, working for the NHS.

[Alpinestars]

Tricky one.

On the face of it, the property is a business property so subject to CGT at 20% if an additional rate tax payer and potentially 10% for a basic rate taxpayer. Gains on residential property is taxed at rates which are 8% higher.

A residential property is defined as one which is, or includes a dwelling (not defined). The dwelling bit refers to a property which is a dwelling or is capable of being a dwelling at any time when it is used or suitable for use as a dwelling or is in the process of being constructed or adapted for such use.

You may therefore have to look at the previous use of the property, and how much it has been modified if it was previously used as a dwelling. The fact it is going to be sold as a dwelling is not helpful.

[anonymous-user]

Isn't there some balancing to do here?

If sold as commercial for, say £500k then gain is taxed at 20%

Same building as resi likely worth more(?), say £750k with gain taxed at 28%

Can't have cake and eat it

[wax lyrical]

But what about 'Entrepreneur's relief' at 10%? When does that apply? The property was (and is still) used as a GP surgery. Landlord was the former senior partner in the practice.

Bloody confusing all of this!!

[Alpinestars]

wax lyrical said:

But what about 'Entrepreneur's relief' at 10%? When does that apply? The property was (and is still) used as a GP surgery. Landlord was the former senior partner in the practice.

Bloody confusing all of this!!

The interaction of ER and CGT on a dwelling is not that clear, but you could reduce the tax rate to 10%. I don't think ER applies to the property in this case, because the asset on which you're claiming relief has to be disposed with the partnership interest. In this case, the interest was sold some time before the property will be sold.

[wax lyrical]

Thanks. On a slight tangent - if he doesn't sell the property and just keeps it until death, would his estate still be charged the CGT plus the IHT, or just the 40% IHT?

Alpinestars said:

wax lyrical said:

But what about 'Entrepreneur's relief' at 10%? When does that apply? The property was (and is still) used as a GP surgery. Landlord was the former senior partner in the practice.

Bloody confusing all of this!!

The interaction of ER and CGT on a dwelling is not that clear, but you could reduce the tax rate to 10%. I don't think ER applies to the property in this case, because the asset on which you're claiming relief has to be disposed with the partnership interest. In this case, the interest was sold some time before the property will be sold.

[DoubleSix]

If it was a residential property at an earlier point and OP lived in it he could be eligible for partial primary residence relief.

[wax lyrical]

It was never lived in by the GP landlord. Bought 30 yrs ago to be used as a GP surgery. He retired 2 years ago, and rented it to the current GP.

[Alpinestars]

wax lyrical said:

Thanks. On a slight tangent - if he doesn't sell the property and just keeps it until death, would his estate still be charged the CGT plus the IHT, or just the 40% IHT?

Alpinestars said:

wax lyrical said:

But what about 'Entrepreneur's relief' at 10%? When does that apply? The property was (and is still) used as a GP surgery. Landlord was the former senior partner in the practice.

Bloody confusing all of this!!

The interaction of ER and CGT on a dwelling is not that clear, but you could reduce the tax rate to 10%. I don't think ER applies to the property in this case, because the asset on which you're claiming relief has to be disposed with the partnership interest. In this case, the interest was sold some time before the property will be sold.

It would form part of his estate, so subject to IHT. He might get business property relief.

[anonymous-user]

Alpinestars said:

It would form part of his estate, so subject to IHT. He might get business property relief.

Are you sure you can get BPR on a property?

[Alpinestars]

desolate said:

Alpinestars said:

It would form part of his estate, so subject to IHT. He might get business property relief.

Are you sure you can get BPR on a property?

Yep. S105 IHTA1994.

He might not satisfy the conditions though.

[anonymous-user]

Alpinestars said:

Yep. S105 IHTA1994.

He might not satisfy the conditions though.

Thanks.
Will look that up.

[Alpinestars]

desolate said:

Alpinestars said:

Yep. S105 IHTA1994.

He might not satisfy the conditions though.

Thanks.
Will look that up.

Are you looking at ways of raising cash to pay the bet off .

[anonymous-user]

Alpinestars said:

Are you looking at ways of raising cash to pay the bet off .

Just getting the groundwork in yes.

[wax lyrical]

Thanks for all the advice so far guys. Really appreciated!

So to summarise - the 28% CGT can be avoided if he just hangs into the property until death, and then only IHT applies?

[Alpinestars]

wax lyrical said:

Thanks for all the advice so far guys. Really appreciated!

So to summarise - the 28% CGT can be avoided if he just hangs into the property until death, and then only IHT applies?

Yes. CGT only applies if he makes a disposal.

[BassFlyer]

Would have to check but won't the fact of a (presumably) market rent being paid unhorse the claim to entrepreneurs relief on the sale? Especially as GP has retired from practice a few years ago.

[Alpinestars]

BassFlyer said:

Would have to check but won't the fact of a (presumably) market rent being paid unhorse the claim to entrepreneurs relief on the sale? Especially as GP has retired from practice a few years ago.

ER would be time apportioned. Assuming he gets ER in the first place (associated disposal).

[soxboy]

I would be more concerned about being able to get possession of the property. Even though there's no lease in place, if rent has been charged and received for the last 2 years or so then a tenancy will be deemed to be in place and the tenant may well have Landlord and Tenant Act protection.

[wax lyrical]

Thank you all! Lots of food for thought and slightly worrying. I think an amicable approach to getting the GP to leave would be best. He's been wanting to find a new place anyway as I understand.