CGT on property loss with connected party

[Orchidsol]

Hi - I bought a house with a sibling to whom I owe money. Our contract stipulates that if i cannot repay the loan, they can oblige me to sell them back part of the house in order to cancel out the debt owed. Because the house is in significant negative equity, I will crystalise a loss for CGT purposes on this transaction. I could use this loss against a recently made CGT gain. (Note - PPR relief for CGT is simply a 'relief' and does not have to be claimed, therefore a loss on a PPR residence can be used to offset against another gain).

The problem is that S549 of 97 Tax act, ss3 states that where a loss is made on a disposale to a connected party, you cannot offset this loss other than against a gain made to the same connected party.

Is there any way one could argue that because i am selling the house share in a situation where I am broke and the house is in negative equity, and we are selling the share at a externally valued price, that we are not connected parties for the purposes of the legislation and that this is a bona fide transaction - please help !!

 

[mandelbrot]

Interesting question; I'm inclined to think you're probably out of luck, but give me 24 hours... I need to consult the oracle...

 

[Nige]

No, section 549(3) applies to all connected party transactions regardless of whether the price is a market value one.

In respect of PPR "relief" it does not have to be "claimed" but applies to PPR cases. However, a quick scan of section 604 seems to suggest that it only applies to gains on a PPR rather than losses (but this doesn't matter if you can't use the loss anyway).