Capital Gains Tax Question

SeanSouth

Wonder if someone can help me with this CGT question

Mr X is owed 100K from Company A.
Company A is not trading very well and Mr X is worried he wont receive his money.
Mr X decides to cut his losses and decides to sell the 100K debt to Mr Y for 20K
Over the next five years, Company A pays back the full 100K loan to Mr Y.

Does Mr Y have a CGT liability on this transaction ?

barneystinson

SeanSouth wrote: »

Wonder if someone can help me with this CGT question

Mr X is owed 100K from Company A.
Company A is not trading very well and Mr X is worried he wont receive his money.
Mr X decides to cut his losses and decides to sell the 100K debt to Mr Y for 20K
Over the next five years, Company A pays back the full 100K loan to Mr Y.

Does Mr Y have a CGT liability on this transaction ?

Well it's definitely not going to be tax free - but if it was a trade debt owed to Mr X, and Mr Y effectively acted as a factoring agent, then it's more likely income as opposed to a capital gain...

SeanSouth

No, Its not a trade debt and Nothing to do with factoring and no question that it is income tax.....

My question is whether there is a Capital Gains Tax liability on the transaction

LAVADUDE

SeanSouth wrote: »

Wonder if someone can help me with this CGT question

Mr X is owed 100K from Company A.
Company A is not trading very well and Mr X is worried he wont receive his money.
Mr X decides to cut his losses and decides to sell the 100K debt to Mr Y for 20K
Over the next five years, Company A pays back the full 100K loan to Mr Y.

Does Mr Y have a CGT liability on this transaction ?

Haven't looked up the rule on this but my instinct tells me yes, Mr.Y bought the debt for 20k and got 100k for it, the gain was 80k (100k-80k), so the CGT would be 80k at 25%

Although I'm not sure of the rule if Mr.Y is a factoring company and if it would be treated as income

barneystinson

SeanSouth wrote: »

No, Its not a trade debt and Nothing to do with factoring and no question that it is income tax.....

My question is whether there is a Capital Gains Tax liability on the transaction

Well as I said in my first post, there can't be a free lunch here. If a person is buying a 100k debt from another person for 20k, they are obviously speculating on the recoverable value of the debt - so they could possibly be deemed to be engaged in a trade...

If the badges of trade do not apply, they would definitely be liable to CGT on the amount they receive in excess of the amount they paid for the debt. A debt is an asset for CGT purposes (S.532(b) TCA 1997), and "the satisfaction of a debt or part of a debt is treated as a disposal by a creditor (other than the original creditor) thus giving rise to a chargeable gain or an allowable loss." (http://www.revenue.ie/en/practitioner/law/note/tcagpart19_08.pdf)

SeanSouth

Thanks very much guys. This is exactly what I am looking for

Saint Sonner

If a mother gifts her house to her son in uk i take it the son will qualify for private residence relief and no capital gains tax will be payable?

barneystinson

Saint Sonner wrote: »

If a mother gifts her house to her son in uk i take it the son will qualify for private residence relief and no capital gains tax will be payable?

Who's where in this scenario? Mother in Ireland gifts her house in Ireland to her son in England, that's what I'm gonna assume you mean...?

On a disposal of an asset to a connected person then it is deemed to occur at market value for tax purposes. If the market value of the house is greater than the cost/value when your mother acquired it, then she will be deemed to have made a capital gain. If she has lived in the house as her Principal Private residence then she can claim PPR relief for the period that she actually lived in it (plus the last 12months).

Saint Sonner

barneystinson wrote: »

Who's where in this scenario? Mother in Ireland gifts her house in Ireland to her son in England, that's what I'm gonna assume you mean...?

On a disposal of an asset to a connected person then it is deemed to occur at market value for tax purposes. If the market value of the house is greater than the cost/value when your mother acquired it, then she will be deemed to have made a capital gain. If she has lived in the house as her Principal Private residence then she can claim PPR relief for the period that she actually lived in it (plus the last 12months).

Mother and son both in uk - mother will continue to live with son but wants to pass deeds to son!

nompere

Saint Sonner wrote: »

Mother and son both in uk - mother will continue to live with son but wants to pass deeds to son!

Do you really want advice on UK taxation from an anonymous person on an Irish website?

You need to talk to a professional who specialises in this area. Makes sure he understands PETs and "gifts with reservation" amongst many other things.

Saint Sonner

nompere wrote: »

Do you really want advice on UK taxation from an anonymous person on an Irish website?

You need to talk to a professional who specialises in this area. Makes sure he understands PETs and "gifts with reservation" amongst many other things.

As funny as this sounds i'm a professional myself but haven't dealt with this issue in a while but was looking confirmation on it! I have enough knowledge to know if the advise I was getting on here was totally off! I'll just go get my books out again then!!!