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Capital Gains Tax

A client was disposing of about half of a 20 acre site, all of which was used for industrial purposes, for redevelopment. The redevelopment project was to be carried out in a joint venture with a property developer. We were instructed to value the property asset as at 31st March 1982 to establish a base value and to value the land placed into the joint venture. The valuations were to be negotiated with the Valuation Office Agency which is HMRC’s valuation group.

We valued the property asset at 30% more than the clients own asset valuers had valued the property in 1981. This was achieved by a proper and informed application of the statutory rules which can often provide a very different value to a ‘normal ‘openmarket value. We also placed a substantial value on the land transferred into the joint venture.

The value as at 1982 was agreed with HMRC and created a significant base value. The value as at date of disposal did not give rise to a charge to tax because of the level of base value agreed, plus indexation. The value agreed on the land transferred was sufficient to shelter any profit from the development for the first five years of projected profits. This was achieved by PTS having a proper understanding of the statutory rules together the skill and knowledge to apply them on the client’s behalf.

Principle private residence relief is available as a matter of right where a residential property, together with its garden and grounds extend to 0.5 hectares [1.236 acres] or less at the date of disposal. HMRC will pursue cases where a house, garden and grounds exceed this area and a reasonable price is obtained. The argument being that the additional land brings significant additional value to the property. The following case study deals with a large ‘residence’ but illustrates a number of issues. A property was sold for some £1.8 million, together with about 11.5 acres of which about 5 acres were garden and grounds and 6 acres were agricultural land used for grazing. The VOA and HMRC sought to tax £300,000 of the purchase price as a capital gain and limit the allowable area to about 2 acres. We successfully proved that that all the land used as garden and grounds were reasonably required for the enjoyment of the property. With respect to the additional land we agreed its value at date of disposal and its base value in 1982. The upshot was that no additional tax was due. This is not achievable in every case but usually the initial demands of HMRC can be moderated or defeated in litigation, pre-planning can often take the potential risks away.
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