1982 Commercial Property Valuation for CGT

[Wings]

I need to calculate my business Capital Gains Tax liability, this involves a disposal of a commercial property that was purchased via 1982. So in order to calculate the CGT, I first need to arrive at a valuation of the property as at 1982.

I have worked out a rough valuation of the property, and was going tomorrow to the central library to search through local newspapers of that time, to compare prices of the local commercial property market. Once I have a rough price for 1982 of the commercial property for disposal, I will then request HMR&C for a post transaction valuation check.

Are there any other checks or searches that I can make to obtain a more accurate account of a commercial property valuation for 1982.

[Eric Mc]

I am sure surveyor firms provide such valuations. The Revenue also use their own District Valuers if necessary.

[jamesuk28]

Crikey, I would not fancy paying that CGT bill.

[Eric Mc]

It may not be too bad if the full extent of Indexation from 31 March 1982 to 5 April 1998 and Taper Relief from 6 April 1998 to date is fully available to the seller.

Of course, with the abolition of both of these reliefs with effect from 6 April 2008, these are precisely the types of gains which will be absolutely crucified under the new CGT rules.

I wonder how many individuals or property investment businesses are rushing to offload their properties before 5 April 2008 in order to crystalise their gains before these reliefs are abolished - and how much of an effect this is having on dragging down property values?

Alistair Darling is shaping up to be one of the most incompetent Chancellors we have ever had in this country - and he hasn't even had a Budget yet!

Edited by Eric Mc on Tuesday 12th February 09:21

[Wings]

Eric Mc said:

I wonder how many individuals or property investment businesses are rushing to offload their properties before 5 April 2008 in order to crystalise their gains before these reliefs are abolished - and how much of an effect this is having on dragging down property values?

In my early business days, the majority of retailers considered both their premises and businesses, when sold, would be their eventual pension. However during the 90’s many inner city commercial premises were simply not saleable, with many retailers/owners of the same simply boarding up their premises upon retirement. Whilst a life line has been thrown to many owners of commercial property, through the relaxation of planning laws/rules, for conversation/change of use from commercial to residential use, it is without doubt a shame that this government should have in effect increased CGT for many self employed property owners.

Any way back to my CGT quandary, so at this point I need both to calculate whether I am better to complete the disposal of the premises prior to or after April 6th 2008, and of course to carry out that exercise, the valuation of the property at 1982 is helpful in order to achieve the same. However how ever honest I try to be, I seem to have this inbuilt self survivor mechanism that ensures that I always act in my own interest, hence why my own valuation is always going to be set higher than the true1982 market value.

I have decided to carry out my own research for the market value in 1982, then when the disposal has taken place, to complete the CGT calculation, and then send the same together with form CG34 to HMR&C. This will not only allow me a free valuation of the property by HMR&C valuation office, but also allow us plenty of time to agree a valuation, thereby allowing me plenty of time to settle CGT within the time period that the same is due.

As for the benefit of disposal prior to or after 6 April 2008, my calculation shows that my/any property subjected to a 1982 valuation, on the old scheme would achieve an indexation tax relief of 1.047 x cost price, and then the balance subjected to a business taper relief of 25%, and after personal CGT allowance of £8.800, in my case x 2, that leaves for me after 40% tax, CGT to be paid of £15,225.

Under the new scheme, after April 6th 2008, with the same valuation/costs/gain, there would first be the deduction from the gain of the entrepreneur’s relief @ 4/9ths, then the balance 5/9ths less personal CGT allowance of £9,200, in my case x 2, that leaves for me after calculating the new CGT tax of 18%, a CGT to be paid of £24,228.

Edited by Wings on Tuesday 12th February 17:07

[Eric Mc]

I presume the property is owned by an individual rather than a limited company?

[Wings]

Eric Mc said:

I presume the property is owned by an individual rather than a limited company?

Thank you for your imput Eric Mc, your posts are always very informative and have helped me considerably.

In answer to your above post..Yes, I am in partnership with my better half, “her who must always be obeyed”.

[Eric Mc]

Partnership or limited company?

[Wings]

Eric Mc said:

Partnership or limited company?

Just husband and wife partnership, not limited company.

[Eric Mc]

God - that means you will both be able to apply your personal Annual Cpaital Gaints Tax Allowance - currently £9,200. That means £18,400 of the gain is immediately ignored.

[Wings]

Eric Mc said:

God - that means you will both be able to apply your personal Annual Cpaital Gaints Tax Allowance - currently £9,200. That means £18,400 of the gain is immediately ignored.

Whilst I have not included in the following calculations legal costs for both the purchase and possible disposal of the property, it would appear that for me there is a very small financial gain in disposal being prior to 6 April 2008. There is also a further advantage of the property value not then being included in the £1million CGT property value for the new scheme following 6 April, although of course the CGT payable has to be paid earlier, January 2008.

Old CGT scheme up to 6th April 2008

Property disposal prior to 6th April 2008, and purchased in 1997 for £5,000.00, but for CGT purposes needs market valuation as at 1982, so;

Disposal/Sale Price £325,000

Cost/valuation @ 1982 £50,000

Indexation Relief (1.047 x £50k) £52,350
Net £222,650

Taper Relief business to 25% £ 55,662

Less CGT allowance (in my case x2) £ 17,600
Chargeable to tax @ 40% £38,063
CGT payable £ 15,225

New CGT scheme after 6th April 2008

Property disposal after 6th April 2008, and purchased in 1997 for £5,000.00, but for CGT purposes needs market valuation as at 1982, so;

Disposal/Sale Price £325,000

Cost/valuation @ 1982 £50,000
Net £275,000

Less Entrepreneurs relief (4/9ths of £275k) £122,000

Net (5/9ths of £275k) £153,000

Less CGT allowance (in my case x2) £18,400 £134,600
Chargeable to tax @ 10% £134,600
CGT payable £ 13,460

[Eric Mc]

Sorry, but I won't be checking the accuracy of your figures and calculations.

There are limits to the "free" advice I give on PH.

[Wings]

Eric Mc said:

Sorry, but I won't be checking the accuracy of your figures and calculations.

There are limits to the "free" advice I give on PH.

Of course there is, and that was never my intentions of using your valuable time for any free check/advice, and I apologies if my posts gave you reasons to believe the same. You will of course understand that when submitting CGT form CG34 to HMR&C, the same must be accompanied by
a CGT calculation, that I believe is the right and only time I can be sure that my CGT calculation is correctly worked out.

I hope that the differing calculations that I posted may assist others, apart from ourselves, in deciding when to make disposal of a business asset.

[Simpo Two]

You'd think that if HMRC were so keen on getting your cash, they'd do the sums for you.

But then again, they'd probably get them wrong...

[Eric Mc]

Wings said:

Eric Mc said:

Sorry, but I won't be checking the accuracy of your figures and calculations.

There are limits to the "free" advice I give on PH.

Of course there is, and that was never my intentions of using your valuable time for any free check/advice, and I apologies if my posts gave you reasons to believe the same. You will of course understand that when submitting CGT form CG34 to HMR&C, the same must be accompanied by
a CGT calculation, that I believe is the right and only time I can be sure that my CGT calculation is correctly worked out.

I hope that the differing calculations that I posted may assist others, apart from ourselves, in deciding when to make disposal of a business asset.

Apologies for any misconstruing going on on my behalf.

The Rebenue will do the sums for you,, if you get the figures to them before 30 September after the end of teh relevant tax year.

[Wings]

In another life I use to own/drive a very large van, I was always being asked by either family or acquaintances if I was ever passing Tooting, Chelsea or Bath etc. etc., and if so if I could JUST drop off a bed, chair or the contents of their garage etc. etc. So I can quite understand the irritation of those looking for a freebie, and therefore where you were coming from.

I did both complete and submit form CG34 today, together with my CGT calculation, with an explanation to HMR&C, that whilst I am early with the same, since the asset/property is subjected to planning permission for demolition and the erection of 6 one bedroom flats, any delay might be too late for HMR&C to valuate the same.