Property query

System

We have a client who has quite a large portfolio of property...

He was in the process of acuqiring a further property and laid down a LARGE deposit, he then couldn't raise the additional funds and lost his deposit. The properties are for schedule A purposes.

Do you think this lost deposit could be classed as a capital loss?

I think we already know the answer ... would be good to have some other views on it though.

Regards

Dean

System

Re:Property query

This isn't strictly a yes or no query. Capital losses have a test attached to them in which you have to interpret whether or not the transaction in question gives rise to a pre-meditated tax advantage.

Have a look at the link below and see if it helps.

Sorry I couldn't be more specific but you obviously know the circumstances in more detail.

http://www.hmrc.gov.uk/budget2006/bn.11pdf

Regards
Steve

if the link doesn't work type in BN11 in the search box.

System

Re:Property query

"Sorry but the page you are trying to reach cannot be found." Doh!

Thanks for the reply Steve. Need as much info and legislation that you can chuck at me!

Regards

Dean

System

Re:Property query

type in BN11 in the search box. It should take you to the business brief.

Regards

System

Re:Property query

Done that now.

Although it's not a corporate capital loss. It's an individual, non trading (therefore non business asset), used for property income.

Regards

Dean

System

Re:Property query

I wouldn't have thought so then. The revenue may take the view that your client must have known the purchase price when agreeing to buy the property and therefore should have had a reasonable expectation that he would not be able to raise the balance of the purchase price and therefore the loss of deposit will have to be taken on the chin.

I had a similar case (though corporate) last week. A client had pumped money into his business. The business has now gone into liquidation. He wanted to claim tax relief on the money - he couldn't unless he had subscribed to shares. The revenue's legislation on this is that if you put money into a lifeless project then you suffer the consequences at your peril! Again though, that is a corporate case. I'm not as well-versed on individuals.

There might be some relief available - that's why I say contact HMRC - but I think that if your client is allowed this as a capital loss, then the precedent is that others in the same position could spend thousands towards the end of the tax year and lose money just to create a loss and reduce their capital gain.

Good luck with it.

Steve

System

Re:Property query

Thanks again for your reply Steve. That's our general feeling too, although the said client has three other properties next door to each other, knocked through a hole and now "trades" with bed & breakfast...

Now we have to explain that he's not trading although he is etc. etc., his intention was schedule A not trading

Our interpretaion is this:

Strict definition is Sales proceeds over cost could equal the capital loss, in this case the client has never acquired the property so therefore no sales proceeds.

Regards

Dean

System

Re:Property query

That's how I would interpret it. As completion hadn't actually taken place (nor contracts exchanged) then title to the property has never passed to the client, thus no capital expenditure incurred.

Regards
Steve

System

Re:Property query

I don't know the answer to your question, but I heard a story a while ago (probably on here!) about someone who'd bought a laptop (to use in her business) off ebay but the laptop never arrived and she had no insurance or anything. She had phoned HMRC and they confirmed that she couldn't have any tax relief for the money paid. I know it's a much smaller scale than your case, but I wouldn't be surprised if a similar principle applies. all seems a bit unfair to me.

System

Re:Property query

It does seem unfair especially when huge sums of money are involved. However, if you consider that if tax relief is granted on something when you part money for it, but never actually receive, then you cannot actually sell it because you haven't got the asset to sell. In particular, if it should be a de-pooled asset or an asset on which a capital gains tax charge could be triggered upon the sale of such, then if they allowed tax relief when the deposit or monies were paid then there would be no other tax consequences (i.e. upon disposal) as the asset does not, in fact, exist.

Kind regards
Steve