Showing posts with label capital gains. Show all posts
Showing posts with label capital gains. Show all posts

Friday, November 16, 2018

Changes in off-plan treatment for PPR relief

Principal property relief (PPR) sometimes also called private residence relief (PRR) saw its usefulness seriously curtailed following a recent decision of the Upper Tribunal (UT) that overturned a First-tier Tribunal (FTT) ruling of 2017. The issue at stake is how to determine the date of acquisition of an off-plan property and the new ruling means that property owners should be very cautious when they purchase off-plan their principal residence.

PPR reduces any taxable capital gain on a property if the property has been used as a principal residence for part of its ownership. The case in question concerned the definition of ownership for the purpose of the relief. HMRC argued that the date of acquisition was the date when contracts were exchanged whereas the taxpayer argued it was the date when he was finally able to occupy the property, three years later. The FTT agreed with the taxpayer but HMRC appealed and the UT decided to side with HMRC.

The UT took the view that even though there was a period when the property was not even a dwelling, it was a chargeable asset nonetheless. As a matter of fact, the taxpayer had the right all along to sell the property and therefore there was no doubt that profit from such a sale would be taxable.

Now, not all is lost in case the delay in taking up occupation is less than a year (2 years at most in exceptional circumstances) thanks Extra Statutory Concession D49 that allows for relief in such a case. But caution should be exercised if you suspect there will be delays in construction as it will now most probably have negative tax implications for the homeowner upon resale.

Thursday, December 1, 2016

Saving tax with Deferral of Capital Gains

While Capital Gain Taxes have been slashed in the recent budget to 10% and 20% (from the 18% and 28% that it used to be), CGT has remained unchanged for residential property gains. While the tax rate for gains is lower than the one for income, amounts tend to be much bigger and far appart, making it harder to use allowances and low rate bands.

This is where deferral comes in handy. The Enterprise Investment Scheme (EIS) provides one of the mechanisms that allows such a deferral. Most people misunderstand that the general EIS conditions for income tax relief are much more restrictive than the conditions for CGT deferral. In particular the requirement that one owns less than 30% of the company or that one is connected to the business only applies to the income tax relief component of the EIS, not the CGT deferral. Same thing for the requirement that the investment be held 3 years or more: if you sell earlier the deferral just ends then (see HMRC note).