Capital gains tax on plot!

[Amateur bob]

good morning just wondering if anyone has any info on this,

 

my dad is signing over a bit of agricultural land to me for a house plot the planning could be through any day now, due to hold ups with getting it transferred it may have outline planning on it by the time its transferred, this will increase the value to be transferred and im told my dad could then be liable to pay capital gains tax, is this true though?

 

The farm was bought or 250k about 30 years  ago and the plot hes gifting would be work mabye 100k, this is clearly less than the purchase price of the farm BUT its only a partial disposal of the asset so how does this affect things?

 

if im liable for tax is there anyway of holding over the tax on gifts? so that tax is only liable if i then sell the plot?

 

thanks

[PeterW]

It is a gift not a sale. As long as he lives for 7 years then IHT is not payable. CGT may be payable by you if you sell within a certain period. 
 

Best advice is speak to a solicitor who specialises in property and inheritance matters. 
 

https://www.thelawsuperstore.co.uk/help-and-advice/transferring-property-ownership-to-family-members

 

 

[Amateur bob]

20 minutes ago, PeterW said:

It is a gift not a sale. As long as he lives for 7 years then IHT is not payable. CGT may be payable by you if you sell within a certain period. 
 

Best advice is speak to a solicitor who specialises in property and inheritance matters. 
 

https://www.thelawsuperstore.co.uk/help-and-advice/transferring-property-ownership-to-family-members

 

 

And if not 7 years? are you not allowed up to 250k tax free?

[PeterW]

IHT and CGT are two different things - assuming you are using a solicitor for the transfer then they need to advise you on this as if you get it wrong it can be incredibly expensive not just now but in the future. 
 

The advice from an Internet forum on this sort of thing is worth about what you are paying for it ... 

[nod]

I mentioned this on here a while back 

A friends father has a dairy farm and gave him and his sister a barn to convert to two homes 

To cut a long story short they had planning difficulties and brought in a consultant 

That advised that they father may be liable for tax on the finished homes 

They ended buying the barn from there father to stop this happening 

 

[Temp]

2 hours ago, PeterW said:

It is a gift not a sale. As long as he lives for 7 years then IHT is not payable. CGT may be payable by you if you sell within a certain period. 
 

Best advice is speak to a solicitor who specialises in property and inheritance matters. 
 

https://www.thelawsuperstore.co.uk/help-and-advice/transferring-property-ownership-to-family-members

 

 

 

 

+1 to seek professional advice. I believe special rules apply to gifts of land

 

https://taxscouts.com/capital-gains-tax-on-gifted-property/#:~:text=If you gift someone a,them as a gift instead.

 

"If you gift someone a property, you will usually have to pay Capital Gains Tax (CGT) if it increased in value since you bought it."

 

"You don’t need to pay CGT if:

You’ve lived there the entire time (it was your home)

Or you give it to your spouse

Or you put it into a trust for the benefit of your child. In this situation, it will be deferred until your child sells the property."

Edited August 23, 2020 by Temp

[Temp]

PS I think only the farm house and its "garden" would come under the "it was your home" exemption, not a field.

[Temp]

27 minutes ago, Temp said:

Or you give it to your spouse

 

I don't know if this works but ask a tax advisor...

 

Could he gift it to your mum. No CGT due as its a gift to spouse. Then in 6 months time she gifts it to you. Would CGT be payable on the gain over just 6 months or the whole time your father owned it?

 

This seems like a loophole they may have closed.

[Amateur bob]

thanks for the replies, the farm has increased in value since it was purchased BUT the value of the plot is still a lot less than the purchase value(base value) so should this help the situation or because the whole farm isnt being sold does this not count? this is my main query

[Thedreamer]

18 minutes ago, Amateur bob said:

thanks for the replies, the farm has increased in value since it was purchased BUT the value of the plot is still a lot less than the purchase value(base value) so should this help the situation or because the whole farm isnt being sold does this not count? this is my main query

 

How are you calculating the base value of the plot and have you compared it to the market value of the plot today? Surely the plot value has increased dramatically since the original purchase.

 

Capital gains is on the gain of an asset on disposal. Inheritance tax is when you inherit an asset (whether before or after death), this is separate to the possible gain.

 

Need to consider connected rules and market value, if this is being gifted away to nothing from a family member.

 

You not going to achieve to much on here you need to speak to tax adviser/solicitor and possibly may need a surveyor who does valuations to determine the gift of an asset. 

[Temp]

CGT would paid on the increase in value of the plot. Your father will need to provide evidence of the plots value at time of purchase and transfer. Both can be estimated by an estate agent. There is likely to be a significant increase in value due to you getting Planning Permission if the plot it was originally agricultural land. Ideally you should have transferred the plot into your name before applying for planning permission. 

 

I believe the CGT rate is 28% on property and the current allowance is £12,300. It might be possible to double that if the land is in joint names with your mother. 

 

It might also be possible to use multiple years of allowance by transferring part shares in the land (either by spliting the plot or by shared ownership eg 50% this year and 50% next tax year). 

 

I would get it valued and work out the tax liability. Then get professional advice to see what can be done.

 

 

[Amateur bob]

1 hour ago, Temp said:

CGT would paid on the increase in value of the plot. Your father will need to provide evidence of the plots value at time of purchase and transfer. Both can be estimated by an estate agent. There is likely to be a significant increase in value due to you getting Planning Permission if the plot it was originally agricultural land. Ideally you should have transferred the plot into your name before applying for planning permission. 

 

I believe the CGT rate is 28% on property and the current allowance is £12,300. It might be possible to double that if the land is in joint names with your mother. 

 

It might also be possible to use multiple years of allowance by transferring part shares in the land (either by spliting the plot or by shared ownership eg 50% this year and 50% next tax year). 

 

I would get it valued and work out the tax liability. Then get professional advice to see what can be done.

 

 

 

[Amateur bob]

Just now, Amateur bob said:

 

the land wasnt purchased as a plot it was purchased as a farm 30 years ago, the plot is a bit of agricultural land so im not sure if wed use the purchase cost of the farm(250k)  as the base value? the plot will be worth less than this so in theory no tax id like to think? the land is owned jointly between my dad and mum currently, i believe we would be in the lower tax btacket so 18% capital gains tax(if it did apply)

[Amateur bob]

3 hours ago, Thedreamer said:

 

How are you calculating the base value of the plot and have you compared it to the market value of the plot today? Surely the plot value has increased dramatically since the original purchase.

 

Capital gains is on the gain of an asset on disposal. Inheritance tax is when you inherit an asset (whether before or after death), this is separate to the possible gain.

 

Need to consider connected rules and market value, if this is being gifted away to nothing from a family member.

 

You not going to achieve to much on here you need to speak to tax adviser/solicitor and possibly may need a surveyor who does valuations to determine the gift of an asset. 

the land wasnt purchased as a plot it was purchased as a farm 30 years ago, the plot is a bit of agricultural land so im not sure if wed use the purchase cost of the farm(250k)  as the base value? the plot will be worth less than this so in theory no tax id like to think? the land is owned jointly between my dad and mum currently, i believe we would be in the lower tax btacket so 18% capital gains tax(if it did apply)

[Thedreamer]

6 minutes ago, Amateur bob said:

the land wasnt purchased as a plot it was purchased as a farm 30 years ago, the plot is a bit of agricultural land so im not sure if wed use the purchase cost of the farm(250k)  as the base value? the plot will be worth less than this so in theory no tax id like to think? the land is owned jointly between my dad and mum currently, i believe we would be in the lower tax btacket so 18% capital gains tax(if it did apply)

 

GET PROFESSIONAL ADVICE!!!! ?

[Amateur bob]

15 minutes ago, Thedreamer said:

 

GET PROFESSIONAL ADVICE!!!! ?

i will im just getting some advice on here first

[scottishjohn]

2 hours ago, Temp said:

It might also be possible to use multiple years of allowance by transferring part shares in the land (either by spliting the plot or by shared ownership eg 50% this year and 50% next tax year). 

doubt it --speak to a solicitor

 

[Temp]

1 hour ago, Amateur bob said:

the land wasnt purchased as a plot it was purchased as a farm 30 years ago, the plot is a bit of agricultural land so im not sure if wed use the purchase cost of the farm(250k)  as the base value?

 

No. They cannot use the farm purchase price as that would imply all of the value was in the plot and the rest was worthless at the time of purchase. 

 

An agent would estimate the value of the plot alone at the date when the farm was acquired. It would most likely be based on the value of agricultural the land (which was perhaps a few £thousand an acre back then) multiplied by the area of the plot. At best they might be able to increase its value to take into account any "development potential" that the plot had had at the time the farm was purchased.  

 

1 hour ago, Amateur bob said:

the plot will be worth less than this so in theory no tax id like to think? the land is owned jointly between my dad and mum currently, i believe we would be in the lower tax btacket so 18% capital gains tax(if it did apply)

 

He might be a basic rate tax payer now but the rate depends how much gain you make..

 

https://www.gov.uk/capital-gains-tax/rates

 

Quote

 

If you pay basic rate Income Tax

If you’re a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.

 

1) Work out how much taxable income you have - this is your income minus your Personal Allowance and any other Income Tax reliefs you’re entitled to.

2) Work out your total taxable gains.

3) Deduct your tax-free allowance from your total taxable gains.

4) Add this amount to your taxable income.

5) If this amount is within the basic Income Tax band you’ll pay 10% on your gains (or 18% on residential property). You’ll pay 20% (or 28% on residential property) on any amount above the basic tax rate.
 

 

 

Its fortunate its in joint names...

 

It could be the capital gain is say £100,000 - £10,000 = £90,000.

£45,000 each, less their £12,300 allowance = £32,700.

Plus their income from other sources = £?

They would pay 28% on anything over £50,000.

eg if one of them earns more than £17,300 in taxable income (eg £50,000-£32,700 = £17,300) the extra would be taxed at 28%.

Edited August 23, 2020 by Temp

[Amateur bob]

Thanks thats very useful, my accountant mentioned something about me mabye being able to sign something so the gain was passed on and my parents didnt have to pay tax, would this sound feasable? He was going to look into it but hasnt got back to me yet!

[scottishjohn]

5 hours ago, Temp said:

 

No. They cannot use the farm purchase price as that would imply all of the value was in the plot and the rest was worthless at the time of purchase. 

 

An agent would estimate the value of the plot alone at the date when the farm was acquired. It would most likely be based on the value of agricultural the land (which was perhaps a few £thousand an acre back then) multiplied by the area of the plot. At best they might be able to increase its value to take into account any "development potential" that the plot had had at the time the farm was purchased.  

 

 

He might be a basic rate tax payer now but the rate depends how much gain you make..

 

https://www.gov.uk/capital-gains-tax/rates

 

 

Its fortunate its in joint names...

 

It could be the capital gain is say £100,000 - £10,000 = £90,000.

£45,000 each, less their £12,300 allowance = £32,700.

Plus their income from other sources = £?

They would pay 28% on anything over £50,000.

eg if one of them earns more than £17,300 in taxable income (eg £50,000-£32,700 = £17,300) the extra would be taxed at 28%.

not as simple as that -maybe they are retired and taking a pension if so then a gain of that amount would put then into the 40% tax bracket 

stop guessing and get real advice and that can only be valid when you know when this transaction will happen --you cannot guess whats going to happen in ten years time -all sorts of changes could happen 

and considering the money that the government has spent on corvid --there will be some big tax rises coming for sure --especially oCGT and IHT

 

Edited August 23, 2020 by scottishjohn

[Temp]

Indeed. I've said they need proper advice at least twice already.

[Temp]

3 hours ago, Amateur bob said:

Thanks thats very useful, my accountant mentioned something about me mabye being able to sign something so the gain was passed on and my parents didnt have to pay tax, would this sound feasable? He was going to look into it but hasnt got back to me yet!

 

Perhaps he was referring to putting the land in trust. See my earlier post.

[scottishjohn]

Just now, Temp said:

Perhaps he was referring to putting the land in trust. See my earlier post.

CGT only comes  when he sells -- and the cost of making a trust and the limitations it would put on what you can do later --not a good idea 

 

if you make money you gonna pay tax --suck it up 

only things in life for sure are death ,taxs and relatives when there is a will

[Amateur bob]

7 hours ago, scottishjohn said:

CGT only comes  when he sells -- and the cost of making a trust and the limitations it would put on what you can do later --not a good idea 

 

if you make money you gonna pay tax --suck it up 

only things in life for sure are death ,taxs and relatives when there is a will

Deferral (which requires a claim to be made to HMRC) is possible in one of two ways, both requiring the disposal to take the form of a gift (or a sale below market value), namely a gift of a ‘business asset’ or a gift that precipitates an immediate inheritance tax (IHT) charge (i.e. even if the charge is at the nil (0%) rate). 

 

Deferral refers to the procedure under which any capital gain arising is ‘held-over’. This is achieved as illustrated in the following example; effectively, the gain of the individual making the gift is transferred to the recipient. Because of this, the recipient of the gift has to agree to the deferral (unless the transfer is to a trust).

 

has anyone on here heard of this?

[Amateur bob]

In addition, land which qualifies for agricultural property relief (whether at 50% or 100%) for IHT purposes also qualifies as a business asset for hold-over relief purposes. On the other hand, for example, a buy-to-let property does not so qualify 

 

heres the curious bit, land qualifies but does land with outline planning on it?