Ruling on 'allowable costs' when selling

[phylisbide]

Sorry to start yet another thread on this rather protracted saga, but... our friends who decided they want out of the shared property, took all the joint bills for materials and French artisans to the notaire to have ownership changed and all the plus value stuff sorted. The notaire said the materials costs - windows, timber etc etc (all purchased in France)  are not allowable costs. Is he right? I know english purchases cannot be included but thought French materials would still count  - deeply aggravating as our friends now want to renotiate the price we agreed.... any help would be appreciated. Thanks, Phylis

[Ron Avery]

It seems that your Notaire is treating this as a CGT issue and not allowing anything that would not be claimable against CGT, only items supplied and  installed by a French registered artisan can now be offset against CGT.  As that is not the case here and you are trying to establish an asset value , I would suggest that you go back to the Notaire and ask him why he is dissallowing these items.

[hastobe]

It may be that the other parties weren't expecting their CGT to be as

high (i.e. thought they could reduce their CGT by deducting the

materials cost).  In which case the CGT calculation would be

relevant - for them.  I know these sort of situations require a

negotiation / compromise but I would be a bit annoyed too.  It

sounds from your earlier posts on this subject that you have organised

most of the work - on their behalf - and if there is CGT they have

clearly benefitted from your efforts to improve the property. 

Sounds like they want to have their cake and eat it.

Presumably your friends are UK resident - if so they can still reduce

their UK CGT liability by offsetting the Fench material costs...

Hastobe

[BJSLIV]

Ron

The Notaire will have to do the CGT calculation following the rules you outlined because  he needs to calculate the gains and hence any potential tax liability on the friends disposal.

I suppose it might come as a shock to the friends to find that  the tax liability is higher than they expected; presumably its  8% of the costs of all of the materials input.

Its very hard to arrive at a solution that feels equitable to both parties, and is an easy way to make ex friends!

 

[phylisbide]

Thanks for your comments

The question is, though, is the notaire right to disallow the french materials for CGT? My understanding was that they are included as costs when doing the calculations. Perhaps I have misunderstood. The friends are going to be less in pocket than they originally thought - We are not talking huuuuge sums of money but I would like not to have to renegotiate a figure now. We are already out of pocket to the tune of half a house.....Also, these figures would in the future form the basis of our own CGT liability should we have to leave our lovely place in an idyllic village. Thanks, Phylis

[Mikew]

AFAIK Under new rules only factures from registered artisans are allowable, however, there is a 15% allowance for improvements against CG Tax.

[Teamedup]

The trouble with this is that you aren't just transferring the house to you. It is being sold and then you are buying it. And as you are resident and they aren't I suppose that this will all be very very complicated.

So yes, I would suppose that the notaire would follow the rules about captial gains.

[Will]

Mike W is right. Since, I think, the beginning of 2004, only TVA invoices from French-registered tradesmen are allowable against plus value (the French equivalent of CGT). However, if the house has been owned for more than five years then the notaire can apply a standard percentage for repairs and renovations, which can often work out more favourably.

[phylisbide]

Thanks for your comments. Sorry to be dense but how can you offset French cost of materials against UK CGT? What am I missing here? Phylis

[Teamedup]

Phylisbide, sorry I am getting you mixed up with the other poster who is resident now in France and their friends want out of the arrangement.

I don't know whether you are resident or not, any CGT mentioned on here, well by me, is french CGT. We don't pay it on our residence principale but do on second homes etc if we only have them for a very few years. Will posted the details in the last week or so about time limits, if I remember properly.

 A I don't know whether this sale will be liable to UK CGT either, or if french bills could be used against UK CGT.

[Will]

If the house is in France, then it will be subject to French plus value (CGT). If any of the owners are British taxpayers, then UK CGT may well come into the equation too. Knowledgeable professional advice is definitely called for here, not from a French notaire who will know nothing about British taxation.

[phylisbide]

Thanks - both parties are UK resident and the house is at the moment somewhere where we can go to for breaks  - not really holidays yet cos there is always so much to do.....We will flag up the UK cgt issue to our friends. P 

[hastobe]

If the othr parties are UK resident than they will be subject to UK CGT

with an offset for any French capital taxes paid.  Provided the

costs have been incurred to improve the property rather than maintain

it (i.e. adding a new kitchen where there was no kitchen before as

opposed to updating units, decor etc) and you have invoices to support

the expenditure they will be deductible for UK tax.  It doesn't

matter if the artisan was French or English or where the materials were

bought. 

I'm not sure how long your friends have owned the property (as this

will be a factor in both the French and UK CGT  calculations as

both use a taper method), their marginal rate of tax or what other

gains they have had etc - but it is likely that their tax bill in the

UK will be higher than their French tax bill.  UK CGT on a house

sale is likely to be at the 40% marginal rate which is substantially

higher than the French CGT rate and so the method of calculation of the

French tax may be irrelevant. 

If this is the case I would be very reluctant to renegotiate the price. 

Hastobe

[phylisbide]

Thanks, Will , Hastobe et al. Here's another thought. When some of the work was done, the ruling for materials etc was different - would the Notaire use those rules for the work done in, say, 2003, when materials purchased in France were allowable - and then change the calculation for work done since 2004? Probably sounds too complicated - but it would be fairer... any thoughts appreciated. I am going down to see the notaire in a couple of weeks so all perhaps will become clear. Phylis

[BJSLIV]

Sorry, Its the current rules that apply irrespective of when the work was done. There were a lot of unhappy people at the time the rules changed, especially if their sale had been delayed by a few weeks and they then suffered increased CGT as a result

[johnv]

when you have to get down to this level of  detail with *friends* it's maybe an idea to take best and worst cases .. ie if everything was allowable how much difference would it make, and if nothing was allowable, see what actual money was involved, then work out if it was/is worth falling out over?

[P]

Would have thought that after this they would no longer be seen as 'friends'

[phylisbide]

Sadly - afraid you are probably right. Not even sure why. Phylis

[HoneySuckleDreams]

Seems to be that your saga is no nearer completion.  We're still going through our protracted "negotiations".  I was under the impression that with the new rules materials no longer qualify unless done by a registered French builder/artisan, i.e. no Brico costs.  Have you counted into the CGT calculation that you can offset initial costs of buying the property?  I've been trying to calculate what our "friends" would end up paying as they say 000's but I disagree.  I believe you can use 7.5% of the original purchase costs as figure to offset against CGT, but I have heard that could possible get away with more if you can itemize the bills, e.g. half the original Notaire/Immo costs.  I'm still investigating as to what initial "costs" can be included.  In our case, if you take of the immo/notaire costs and then the 1000Euro that everyone gets, then the actual gain (taxed at 16%) they pay is nominal (as we're only talking of 2 years increase). I'm not sure of the UK tax position though but I would have thought that with £17000 worth of CGT allowance between them then no UK CGT would be forthcoming.