Q. A limited company has 20 shares split equally by two shareholders. One of the shareholders wishes to retire and have no further connections with the company. In this situation, is it best to cancel the 50% of the shares of the retiring shareholder rather than transfer to the continuing shareholder who is going to continue in the business? Or is there another option available?
A. If the conditions for business asset disposal relief are fulfilled, it may not be such a bad option to transfer their 50% of shares to the other shareholder – because then the capital gains tax rate will be 10%. However, the other shareholder may be unable or unwilling to pay for the shares. They should consider speaking to a tax adviser about the possibility of doing a ‘company purchase of own shares’.
Q. I purchased two properties for £150,000 approximately 15 years ago. I purchased one property outright and then obtained a mortgage on the second one. The current market value is £270,000 each. I recently inherited some money, and in May of this year was able to pay off the mortgage on the second property. Both properties are rented out and always have been since I purchased them. I have never lived in either, but am I correct in thinking that if I moved into these as my primary home for a period of time before selling, capital gains tax (CGT) would not be relevant? I would like to know how long I have to live in these houses as my primary home, as at the moment, I live with my parents, so I do not own any other properties.
A. If you move into one of these properties as your primary home, the time you live in it will be free of CGT, but not the time you didn’t live in it. Let’s say you paid £150,000 for the property fifteen years ago, and now you move into it for five years and sell it in five years’ time for £350,000. Your capital gain will be £200,000, spread over twenty years of ownership, or £10,000 capital gain per year. The last five years, equivalent to £50,000 gain, will be exempt. But you will have to pay CGT on the capital gain of £150,000.
Q. I need to complete my self-assessment return. I’m confident filling it in; however, I have some queries regarding property expenses. Last year, I moved out of my flat around March and got my flat ready to rent for August. I had to replace the boiler because it had broken down as it was very old, and replaced the fuse board and some sockets and lights to pass safety regulations. Are these expenses tax-deductible as it’s not clear, and I keep reading conflicting articles?
A. These expenses are tax-deductible. They are pre-trading expenses; see HMRC’s Property Income Manual at PIM2505. It is explained there that if (a) the expenditure was incurred within seven years before the rental business started, and (b) it is not otherwise allowable as a deduction for tax purposes, and (c) it would have been allowed as a deduction if it had been incurred after the rental business started, these expenses are allowable. It seems to me that what you have described falls into these criteria.