Capital gains tax on investment property – The local council will soon be demolishing my 3 investment properties under a regeneration plan . As I have no option but to sell them am I liable to Capital Gains Tax?
Someone says 'no' and that I have the option to use the money to replace the investment within a certain time period as I had no option but to sell. Is this correct?
Your friend is correct. There is a form of roll over relief which is available in a situation of compulsory purchase.
Usually Capital Gains Tax is applicable on a compulsory sale – just like any other sale. But the gain can be rolled over against the acquisition of new land/property in certain circumstances. In practice what happens is that any gain used in purchasing the new land effectively reduces the cost price of the new land for future tax purposes.
So when you come to sell the new land, at some point in the future, the then deemed taxable gain will be equal to (assuming no other reliefs):
the sale price of the new property - ( acquisition price of new property– the rolled over gain from the compulsory purchase)
Yes there are time limits involved namely 12 months prior to the compulsory sale and up to 3 years after. But I'd advise you to speak to a tax accountant ASAP to see if you can benefit from this relief.
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