CGT - Advice please

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dow jones

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I purchased a site for e550,000 in 2008 and spent E300,000 building 4 apartments on the front 2/3rds of the site. I then sold the rear 1/3rd which was not developed for e145,000. The market value of the remaining part of the site including apartments is about e680,000. I'm trying to work out the cost allowed for the portion I sold for CGT. I came up with e149,393 giving me a gain of e4,393 ((145,000/(680,000+145,000))*(550000+300000)-145,000) but I've been told i cant include the building cost as 'enhancement' cost as they did not apply to the section sold and my gain is e48,333 ((145,000/(680,000+145,000))*(550000)-145,000). Are enhancement costs allowed in this case? Any help would be great
 
please re-format the post/data - it isn't easy to see what the figures mean - you lost me about 10 words in :-(
 
From the info you provided:
You bought an asset for 550k.
You sold 1/3 of that asset for 145k.
So, you've made a capital loss of 38k: (550/3) - 145

That changes if the bit you've sold is zoned differently for example, meaning it didn't have an equal 1/3 if the value when you bought it. But you haven't provided that info.

What you've spent is only factored in if it enhances the part you've sold, e.g. if you've provided access roads, lighting, obtained planning permission, etc.
 
Thanks very much for the replies and the link (great) and sorry if I wasn't clear in my question.

I understand that 'enhancement costs' only apply if spent on the part disposed but my question is why are the 'enhancement costs' included in the calculation of the value of the remaining portion. This seems unfair when calculating the cost of the part disposed.
 
Hi RedOnion, the total cost was e550,000 so the 1/3 disposed part cost me e183,333. There were no enhancement costs on the part disposal
 
Ah sorry, I skipped all the way to the end without explaining how to get there.

In the link Mary posted above, have a look at section 14.12 where you may set aside the formula in certain circumstances.

I'm suggesting the site with the apartments is a separately recognisable asset from the site you sold, and you could apportion the enhancement costs as such.

So you've made a loss on the 1/3 site, and the full enhancement cost is available against the remaining asset.
 
dow jones said:
Thanks very much for the replies and the link (great) and sorry if I wasn't clear in my question.

I understand that 'enhancement costs' only apply if spent on the part disposed but my question is why are the 'enhancement costs' included in the calculation of the value of the remaining portion. This seems unfair when calculating the cost of the part disposed.
Click to expand...

In short, because that is what the legislation prescribes.
Section 557(2) here https://www.charteredaccountants.ie/taxsource/1997/en/act/pub/0039/sec0557.html.
 
Thanks toblednam, Sec (4) (This section shall not be taken as requiring the apportionment of any expenditure which on the facts is wholly attributable to the asset or part of the asset which is disposed of or wholly attributable to the asset or part of the asset which remains undisposed of) seems to back up what RedOnion is saying so I will see if that works!
Many thanks!
 
Yes, that's exactly the bit I'd be trying to use.

And apologies, when I first read your post last night, I made 20 assumptions in my head to get to this position without saying them, but CGT on development land is very complex, and I could have been completely wrong (I could still be!).
 
Has consideration beem given to the fact the above could be subject to income tax rather than cgt? Where you buy land with intention of development for future sale this is a trading transaction subject to income tax rather than a sale subject to CGT.
 
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