Can capital gains tax be included in an IVA?

[Viki.W]

Hey all,

Got a bit of a shock today when my accountant told me that I will have to pay capital gains tax when I sell my restaurant! It's on the market for £89,500 and the acct said I could expect to pay £9000! Even though I am selling it for much less than I paid to start it up and all the capital I introduced?

Anyway, if anyone knows the answer to that one please let me know as the accountant has given me duff info in the past, maybe I should call the tax people but thought I would throw it out to you guys first.

My IVA related question is:- Can this be added to my proposed full and final IVA?

Thanks for listening, I'm feeling very down today because of all this and not even the three crunchies I have just eaten has made me feel any better. [:I]

Viki X

[Viki.W]

Just wanted to add that I have not had to pay any tax for the last three years because business not making a profit, don't know if that is relevant.

[riott]

It sounds like you need a new accountant. You should only pay CGT if you sell something for more than you paid for it. That is, you made a profit on selling the property. You will need to show the paper trail. I would call Tax office and ask them some questions. I have just paid some Capital Gains Tax and the tax office people are not scary really.

good luck

[Viki.W]

Thanks riott, that's exactly what I thought. I am changing accountants just as soon as he finishes vat and accts which I have already paid for. Appreciate the reply, I'm gonna call tax tomorrow. Viki

[angela18]

Hi I work in the tax office.. i'm not capital gains trained. call the tax office and ask to speak to a technical advisor.. they'll be able to help..

[Viki.W]

Thanks Ang, I will give them a call tomorrow.X

[ianmillington]

Is any element of the sales proceeds goodwill, which has the potential for a stand-alone CGT charge?

The rules on CGT are a little strange, IIRC, although this is one of those things I only know a bit about. I am, however, aware that if the disposal of the business results in retirement (from the trade not altogether) there are special reliefs which mean CGT is only effectively at 10% if you ran the business for over 2 years. Having said that, a little knowledge......

Get yourself an accountant who knows the subject.

Yes CGT will go into the IVA as will your self-assessment tax. However, the tax year to go into the IVA will be the current year, 2008/2009. Until you submit your return covering that year HMRC will not know how much Tax you owe. The Return has to be submitted at the end of April 2009 (earliest) or at 31 January 2010 (latest).I note you refer to your IVA as being F&F which I assume means you expect it to be a short-term IVA? Because of the tax position when it will be finalised will depend upon when you submit your returns but it's unlikely to be before the end of April 2009.

All this assumes of course that you sell the restaurant then enter into the IVA. If you do it the other way round there is the likelihood that any Tax liabilities arising on disposal will be required to be treated as a cost of the IVA.

HTH

Ian

[Viki.W]

Thanks for your reply Ian, I appreciate it, I know it's late!

I am selling the restaurant as it is now running at a loss. The proceeds will be put forward as a full and final IVA. I will not have to pay any tax because it is making a loss but the capital gains tax... well, it's a bit beyond me really. I am changing to a local chartered accountant because my accountant is rubbish so hopefully they will be able to clarify things for me.

My restaurant is leasehold, eight and a half years ago I spent approximately £70,000 making the property into a restaurant and then I have introduced further capital over the years so I was just a bit shocked that I may have to pay this tax as I am hardly making a profit by selling it.

Thanks for you help. Viki

[ianmillington]

Okay - it's complex but I'll try to keep it simple.

The basic rule is that you pay tax on the net sales proceeds less the costs of acquisition and any "improvements" to the property. It is important that expenditure items are put into the right pigeon-hole. Items treated as Revenue reduce your profits and reduce your Tax bill for that year. Capital Items can be relevant for Income Tax purposes as well, as you can claim allowances for the depreciation. Because of this, it can be tempting to treat monies spent which would more properly be called improvements as either of the above as it saves tax now rather than when the building is sold some years down the line. There is, however, a rather obvious sting in the tail.

Whether or not any expenditure has been wrongly classified, It is quite possible for a business to lose a fortune but for there to be a potential CGT liability when you dispose of it.

My tax is a bit out of date so I know enough to make it a dangerous thing. It's also important to recognise that with Tax rules are rules and they are not always logical. Consulting a local chartered accountant now is a very smart move. Make sure the accountant is proactive and you get advice on the breakdown of the sales proceeds before it completes so you structure the deal to be as tax-efficient as possible.

Hope this helps

Ian

[Viki.W]

It does help Ian, thanks for that. I have a meeting with the new accountant next week, I'll let you know how it all goes. Viki

[MelanieGiles]

I think that any CGT liability will be more than off-set against your trading losses incurred to date - so I would not worry unduly.

[ianmillington]

It might have changed but I seem to recall that because they are different taxes the trading losses and Capital Gains had to refer to the same tax year.

Might be wrong though.

Ian

[MelanieGiles]

Yes - that's ringing bells with me as well. I will check with my tax department tomorrow

[Viki.W]

Thanks Melanie, I have been so worried about all this, I appreciate your time. Viki X

[Viki.W]

Hey all,

I'm just a little worried about all this capital gains stuff. I spoke to my accountant on Friday. He knows about the potential buyer for the restaurant and that she will be putting an offer in at the end of next week, I told him that I don't think that I will need to pay capital gains tax as there is no way I'm making a profit. He said, and I quote "well it depends on how I word the accounts" What the heck does that mean?

He went on to mumble something about "it depends on how much fixtures and fittings are worth" and lots of other stuff that really just went straight over my head.

Even if this lady puts in the asking price of £79,500, it cost me approx £70K to set the business up, plus all the other money I have introduced over the last eight and a half years.

I know that it can be included in the IVA but I guess I'm just worried that the bigger this debt is the less pence in the pound I will be proposing, the less my chances are of acceptance.

Sorry, I'm waffling a bit now.


Appreciate any views on this.

Viki X

I've just edited that bit about the acct out! Maybe not appropriate!