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Posted on this the other day but left my kind responders confused with too much detail/figures etc so apologies for that and I'm going to have another go...
Need to get my CGT calculation right before I go to an accountant. I recently sold my share of an investment property. But I owed a significant amount to my co-owner, a friend, anyway. So the deal we have struck is that I have accepted a great deal less for my half ownership (so, apparently a loss on my investment) but the debt is repaid in full.
What is the gain I should declare? The amount she has declared on the SDLT or the whole amount, including repayment of the debt?
With thanks, Babushka
If you think about it this way someone has to pay tax on the gain regardless where it actually went.
If me and a friend by a property for £100,000 and sell it for £200,000 there is £100,000 gain split between us. If I owe my friend £50,000 I can technically walk away free and clear and not owe them any money, but the revenue still want their tax from someone as they are still due the tax on the £100,000 gain.
If you don't pay the tax on this gain regardless of the fact that you have paid your mate off, they will have to, as someone has to.
My guess is if it is a 50-50 split then the tax is 50-50 based on the transacted sale price less purchase price and allowable expenses. Owing someone else money is irrelevant. In your case it is your friend who you bought the house with, which is clearly complicating things in your mind, pretend for a second you owe me the money and I had nothing to do with the house you have just sold. You sell it you make your money and you pay your taxes oh and you owe me money it is that simple.
It is not even close to an "apparent loss on your investment" you have made money which is clearly demonstrated by the fact that you have been able to settle a debt with your friend.
Does that make sense now?
Landlord with 25 years’ experience in the property market and a specialist in tenant referencing, ID and credit screening. Creator of identity, credit and anti-money laundering system ValidID.co.uk
Yes, that's broadly what I thought! My friend is not advising me correctly and I don't want to get into trouble with HMRC!
Many thanks for your time!
Great, glad I was able to clear it up for you.
Don't forget you still owe me the money from the house sale above haha just kidding.;-)
Well done for making a clear profit.
What I find confusing is that losses carried forward can be set against future profits of the business. However, if you sell the property due to these losses you cannot claim them against any profits before CGT is applied. So if a tenant doesn't pay rent, you go through the courts etc...never get back the losses and so sell up because you've had enough...all the losses and expenses incurred appears to be your tough luck!
Something does not make sense to me in that formula!
That is the difference between a capital loss and a trading loss one comes off any capital gains and the other comes of your taxable income. Sad but true.