commerical property
Discussion
we own our building out-right, and it is worth something in the region of £1.2m.
We are thinking of the possibility to selling it but it is valued at about £300k, so we are aware that we might have to pay a lot of tax on it.
Is there a way around it? If we suddenly revalue the property at correct value, then there are issues too so I believe.
We will be seeking specialist advice but perhaps someone has had experience already?
We are thinking of the possibility to selling it but it is valued at about £300k, so we are aware that we might have to pay a lot of tax on it.
Is there a way around it? If we suddenly revalue the property at correct value, then there are issues too so I believe.
We will be seeking specialist advice but perhaps someone has had experience already?
CR0X said:
we own our building out-right, and it is worth something in the region of £1.2m.
Who's "we"?
We are thinking of the possibility to selling it but it is valued at about £300k, so we are aware that we might have to pay a lot of tax on it.
If it is "worth £1.2m" how come it is "valued" at £300k?
Is there a way around it? If we suddenly revalue the property at correct value, then there are issues too so I believe.
The "value" is totally irrelevant. What did "you" buy it for and when?
We will be seeking specialist advice but perhaps someone has had experience already?
And, as someone has already mentioned, is it owned byWho's "we"?
We are thinking of the possibility to selling it but it is valued at about £300k, so we are aware that we might have to pay a lot of tax on it.
If it is "worth £1.2m" how come it is "valued" at £300k?
Is there a way around it? If we suddenly revalue the property at correct value, then there are issues too so I believe.
The "value" is totally irrelevant. What did "you" buy it for and when?
We will be seeking specialist advice but perhaps someone has had experience already?
an individual?
a group of individuals?
a limited company?
some other entity?
Edited by Eric Mc on Tuesday 2nd March 16:16
CR0X said:
sorry, should have thought of that.
The property is owned by the company (ltd).
If we were to sell it, it would be to vacate the premises and move the operation elsewhere.
The COMPANY would be liable to Capital Gains Tax on the difference between the original cost and the eventual sale price.The property is owned by the company (ltd).
If we were to sell it, it would be to vacate the premises and move the operation elsewhere.
A further problem is that the cash generated by the sale could be subject to Income Tax and possibly NI if it was withdrawn by the directors/shareholders.
That is not so much an issue if the company uses the sale proceeds in another asset. Indeed, the reinvestment in new assets might defer the Capital Gain by means of rollover relief.
Impossible to answer without knowing the actual figures involved.
The premises are shown in your accounts at their original cost to the business. That is fine.
If the property is sold for, as you think, £2 million, there is obviously a gain on the sale (£2,000,000 minus £300,000 i.e a gain of £1,7 million).
However, if the proceeds of the sale are used to buy a replacement premises, then the tax on the gain will be "postponed" (rolled over is the term used) and the gain will not crystalise until the second property is eventually sold at some future date.
The premises are shown in your accounts at their original cost to the business. That is fine.
If the property is sold for, as you think, £2 million, there is obviously a gain on the sale (£2,000,000 minus £300,000 i.e a gain of £1,7 million).
However, if the proceeds of the sale are used to buy a replacement premises, then the tax on the gain will be "postponed" (rolled over is the term used) and the gain will not crystalise until the second property is eventually sold at some future date.
Eric Mc said:
Impossible to answer without knowing the actual figures involved.
The premises are shown in your accounts at their original cost to the business. That is fine.
If the property is sold for, as you think, £2 million, there is obviously a gain on the sale (£2,000,000 minus £300,000 i.e a gain of £1,7 million).
However, if the proceeds of the sale are used to buy a replacement premises, then the tax on the gain will be "postponed" (rolled over is the term used) and the gain will not crystalise until the second property is eventually sold at some future date.
The £300k may benefit from indexation as well, which effectivly increases the base cost, depending on how long you have owned it.The premises are shown in your accounts at their original cost to the business. That is fine.
If the property is sold for, as you think, £2 million, there is obviously a gain on the sale (£2,000,000 minus £300,000 i.e a gain of £1,7 million).
However, if the proceeds of the sale are used to buy a replacement premises, then the tax on the gain will be "postponed" (rolled over is the term used) and the gain will not crystalise until the second property is eventually sold at some future date.
Just to clarify matters.
For individuals, when the new CGT regime came into effect on 6 April 2008, it meant that all the old "length of ownership related reliefs" i.e. "Indexation" for periods from 31 March 1982 to 5 April 1998 and "Taper Relief" from for periods from 6 April 1998 to 5 April 2008) were abolished and a new flat CGT rate of 18% was introduced (10% for sale of Business Assets).
Regarding limited companies, Indexation had never been abolished and is still in place.
Therefore, if the asset has been held for a number of years, any gains made due to the difference between the original purchase price and the sale price will be mitigated by the application of the Indexation formula which takes into account the effect of inflation using the Retail Price Index (RPI) covering the period from date of purchase to date of sale.
That's the good news.
The bad news is that companies pay Capital Gains Tax at Corporation Tax rates, not the flat 18% or 10% rates that individuals pay. That means the tax may be calculated at 21%, 28% or the Marginal Corporation Tax rate of 29.75% - depending on the size of the company and the level of its overall profits.
Another "bad" aspect of Capital Gains Tax for companies is that companies are not entitled to the annual Capital Gains Tax allowance (currently £10,100 per person).
For individuals, when the new CGT regime came into effect on 6 April 2008, it meant that all the old "length of ownership related reliefs" i.e. "Indexation" for periods from 31 March 1982 to 5 April 1998 and "Taper Relief" from for periods from 6 April 1998 to 5 April 2008) were abolished and a new flat CGT rate of 18% was introduced (10% for sale of Business Assets).
Regarding limited companies, Indexation had never been abolished and is still in place.
Therefore, if the asset has been held for a number of years, any gains made due to the difference between the original purchase price and the sale price will be mitigated by the application of the Indexation formula which takes into account the effect of inflation using the Retail Price Index (RPI) covering the period from date of purchase to date of sale.
That's the good news.
The bad news is that companies pay Capital Gains Tax at Corporation Tax rates, not the flat 18% or 10% rates that individuals pay. That means the tax may be calculated at 21%, 28% or the Marginal Corporation Tax rate of 29.75% - depending on the size of the company and the level of its overall profits.
Another "bad" aspect of Capital Gains Tax for companies is that companies are not entitled to the annual Capital Gains Tax allowance (currently £10,100 per person).
Edited by Eric Mc on Wednesday 3rd March 08:36
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