Will we get the lower 10% rate of capital gains tax on any profit we make on the property sale?

Q. My wife and I acquired a cottage in 2002 and let it as furnished holiday lettings from 2005. We ceased advertising the property this year and it is now on the market. Will we get the lower 10% rate of capital gains tax on any profit we make on the property sale?

A. Yes, as long as the property is sold within three years of the date the holiday lettings business ceased you should both qualify for entrepreneurs' relief on the gain. This relief gives you the lower 10% rate of CGT after deduction of your annual exemption, for gains of up to £10 million per person.

Do I qualify for capital gains tax exemption?

Q. In 2009 my family and I moved out of the home I owned and rented a house near my daughter's school. I have recently sold the original home. Do I qualify for the capital gains tax exemption on that property, even though I wasn't living in it when it was sold?

A. Yes you do qualify for the tax exemption. As you sold your former home within three years of moving out, all of the gain arising on the sale of property will be exempt from capital gains tax. This assumes you occupied the property for all of the period that you owned it, before you moved out. You do not have to declare the gain on your tax return.

Q. I was trying to sell my business before the new tax year, to avoid a potentially large tax bill from an increase in the rate of capital gains tax.

A. The rate of capital gains tax (CGT) has been kept at 18% for 2010/11, so you have not lost out by delaying the sale into the 2010/11 tax year. In fact you may benefit from entrepreneurs' relief that applies to gains on the disposal of businesses, and reduces the effective rate of CGT down to 10%. The cap on this relief has been doubled to £2 million for gains made on and after 6 April 2010.

Transfer Investment Property to Stock

The property markets in all sectors have been through terrible times lately. A number of businesses, which were set up in the good times to invest in let property for the long term, have been forced to sell some properties to generate enough funds to cover costs.

Where the property investment business starts to develop properties for sale, rather than keeping them for long term letting, the business has started a trade of property development. In this case where a property, previously held as an investment, is transferred to the "stock pile" as stock ready to be sold, the property must be treated as if it had been sold at its open market value at that point. This can create a capital gains tax charge, or a capital loss, before the property has actually been sold.

To avoid this difficulty the business owners can make an election to treat the value of the property when it enters the stock pile, as the value when it was acquired by the business. Any gain or loss will then only arise when the property is sold by the business. This election must be sent to the tax office within two years of the end of the accounts year for a company, or by the first anniversary of 31 January following the tax year end for an unincorporated business.

The advantage of making this election is that the loss, if one arises, becomes a trading loss made on the sale of stock by the business rather than a capital loss. Generally a trading loss can be set-off against a wider range of income than a capital loss. However, to use this trading loss the Taxman will have to be convinced that the property business has actually started a trade of property development, and is not simply selling off its surplus investments.

This can be a very difficult area and full advice is essential so please contact us for advice in your own circumstances.