I received a surprise email from a Solicitor contact of mine, asking me to give tax advice to a client who was selling some land. The surprise wasn’t that someone was actually selling land in the current climate, but that a Solicitor had realised that there was tax at stake and remembered to ask BEFORE the deal had been done.
I was told that the client didn’t want to pay Income Tax on the sale. Easy, I thought, as it was clearly a capital disposal and, therefore, subject to CGT rules. A result!
When I explained to the client that she would be liable to tax at 28% and not 45%, she expressed herself pleased. But was there anything else she could do? The tax was still £55,000 after all.
She explained that she didn’t want to be involved in “any of those schemes that I’ve read about in the newspaper” and wanted to stay in control of her finances. So VCT’s and Capital Loss making arrangements were out of the question.
I was at a bit of a loss to be honest, so to buy some thinking time, I asked her what she intended to do with the proceeds of the sale. She explained that she had an old barn and some stables that required a lot of work to get back into fully working order. This was the inspiration that I was looking for and quickly hit upon the idea of setting up a trading company from the stables and using the proceeds as working capital in the new business. She could claim CGT deferal relief on the way in. effectively using the £55,000 that she wasn’t paying to help pay for the work on the stables.
There are still a few fences to cross before the structure is in place, but it is a useful example that CGT is still an optional tax in the UK on the sale of ANY assets if you plough back the proceeds into a trading business.