Winning a house from a competition

stevo5678

Hi guys.

I got a strange one. A holiday home has been won by someone in a competition.

I'm happy that prizes/winnings are tax free intitially.

However I am wondering if it was ever sold would the person be able to use the MV when they received it as their cost? I assume so as other wise they will be paying tax on the growth and the MV when received, when they come to sell it?

Thanks!

Monsoon

Good question. I'd like to say MV, but I don't know.

jamesm96

Hmmm I dunno... I'd tend toward having no base cost; the idea of CGT is to tax the 'profit' that't been made on the sale; if it genuinely didn't cost anything then the gain will be whatever the net sales proceeds are.

That said, if they qualify for the 18% rate then, after the £10,600 allowance it's not a bad rate of tax to be paying on the income. Unless... if they don't own their main home, they could move in and claim PPR?

Monsoon

But if they'd received a prize of £200k and used that to buy a house, then MV would be allowed. But I know, it's probably not allowed. I don't know.

PGM

Monsoon wrote: »

Good question. I'd like to say MV, but I don't know.

I agree, its been gained at MV, as a tax free transaction. So I'd assume profit is the difference from MV when won to sale proceeds.

But I couldn't back this up!

Dean

I think you might be missing some details..

For someone to acquire, someone has had to dispose - no?

It might be part of the 'win' that the "seller" will settle any tax liabilities. It might be a case that your 'someone' agrees to take it on at a base cost of zero - effectively like rollover.

More details needed; but I suspect the position is that the "seller" will settle any tax liabilities and your 'someone' will acquire at MV.

Regards

Dean

stevo5678

If you pay tax on the whole proceeds then you are also paying tax on the 'prize'. However there is no base cost. Common sense tells me you use mv but you never know! Letter to hmrc is probably the answer to confirm.

PGM

stevo5678 wrote: »

If you pay tax on the whole proceeds then you are also paying tax on the 'prize'. However there is no base cost. Common sense tells me you use mv but you never know! Letter to hmrc is probably the answer to confirm.

I'd assume it will be valued at transfer. I don't know if this is similar but a friend was left a house in a will, his solicitor arranged for an estate agent to value the house. This will then be the value its transfered to him at, and I'm guessing profit on sale would be calculated from this.

So maybe a question for the solicitor handling the deeds?

stevo5678

Dean wrote: »

I think you might be missing some details..

For someone to acquire, someone has had to dispose - no?

It might be part of the 'win' that the "seller" will settle any tax liabilities. It might be a case that your 'someone' agrees to take it on at a base cost of zero - effectively like rollover.

More details needed; but I suspect the position is that the "seller" will settle any tax liabilities and your 'someone' will acquire at MV.
Regards

Dean

When you receive money from the lottery its not your concern how the lotto deal with their tax position. You are the recipient of a tax free prize regardless of how the lotto deal with it. Same with betting winnings. The difference here is that is is not a cash prize.

However I do see what you are saying as if it was deemed to be a 'gift' then the seller (if we call them that) would be deemed to part of the property at MV. But this is not a gift it is a prize...I'm not 100% either way!

Dean

stevo5678 wrote: »

when you receive money from the lottery its not your concern how the lotto deal with their tax position. You are the recipient of a tax free prize regardless of how the lotto deal with it

Be interested to hear where the prize came from because you can't compare a national (public) not-for-profit organisation otherwise?

Regards

Dean

Dean

stevo5678 wrote: »

If you pay tax on the whole proceeds then you are also paying tax on the 'prize'. However there is no base cost. Common sense tells me you use mv but you never know! Letter to hmrc is probably the answer to confirm.

Can't see the problem with this. If you want to use the Lottery analogy; you pay tax on the interest accrued but someone has given you the initial capital!

Regards

Dean

stevo5678

Agree, I don't know at present. But gambling winnings etc are private sector..

I can't find anything on HMRC!

Thanks for all your input though.

peaman

Gambling/competition winnings are exempt from CGT.

The value of the gift would therefore be the MV at the date that the property was won.

Thus, in the event of the sale of the property, the base cost for the CGT calculation would be the above MV.


Just found this quote from Head of Tax at Baker Tilly...
'Competition prizes are not taxable when received. When a prize is sold, HM Revenue & Customs take the view that any gain should be calculated as if the winner had purchased the prize'.

stevo5678

Great research, glad that the common sense view seems to be the correct one aswell!

Regards