Scottish property tax question, maybe a bit niche -

[HirplesWithHaggis]

• so I'll post in Property/DIY as well. Here we go...
  

Some years ago, friends (not married) bought two adjacent, almost derelict cottages. They lived in one while doing up the other, then set up as a business letting the renovated cottage, and using the profits from that and other self-employed income, to make the other house more habitable. All duly accounted for to HMRC, my female friend is a stickler, while her ex is, er, not.

Friends split a few years ago, she stayed with their dc in the bigger, but not fully-renovated property. He moved into the small cottage next door, ending the joint enterprise of letting as a holiday cottage, and he agreed to pay her £x to remove him from her title deeds/mortgage, and her name from the smaller place.

Since then he has married and moved away, and he and his wife let the cottage to ordinary tenants (rather than as a holiday let.) It is not currently tenanted, and is up for (Court-ordered) sale because he has significant debts and no other way to repay them.

Female friend and I are wondering if the property is due Capital Gains Tax (because it's not the ex's primary dwelling) and/or to be taxed as profit realised from a company/business assets when said business (letting) is no longer running?

[prettybird]

I think the issue here is HRMC rules re CGT - and Capital Gains has not yet been devolved to the Scottish government.

Where Scotland England are different is on House Sales tax, paid by the purchaser, so not applicable in this case.

[HirplesWithHaggis]

Cheers, and sorry for taking so long to get back to you. I've looked a bit further at CGT and it seems he's liable for 18% after allowances, so that's all good.

[peggyundercrackers]

He might have that proper down as his main residence and the house he lives in as his new wife's main residence - if that was the case then he wouldn't pay cgt on it. I think it would also depend on the value of the property now and when he moved out and began renting it out - if it's not increased in value there will be no cgt to pay.

[HirplesWithHaggis]

I don't think he could get away with claiming it as his main residence, but I wouldn't put it past him to try - he tried to make it look as if he'd transferred it to his new wife (he hadn't) to avoid having to sell it at all, but the Court paid no heed.

Interesting times.

[munchkinmaster]

If he has lived there within the last 2 years he's not liable and ctg is only calculated on the increase in value from when it ceased to be his main home.

[HirplesWithHaggis]

It's more than two years, but it probably hasn't increased much, if at all, in value. The valuation he got last year (to put on the market) was actually slightly less than the one when he and my friend split, and it has failed to sell at that price.

Seems a bit unfair that the massive increase in value when it was renovated and let to holidaymakers goes untaxed, but hey ho, if thems the roolz... :(