Profit on sale of property

[paulhe]

Hi, I have a limited company and the company owned a flat. Recently we sold the flat at a profit. My question is quite simple. How is the profit treated, is it just like any other business transaction and the profit will be added to the general trading profit? Alternatively does the fact that it is a property sale mean that it is treated separately from normal trading e.g .just like profit on.a second home and will attract capital gains tax?

Any help would be appreciated.

[david slater]

Companies don’t pay capital gains tax. Profit on sale of property will be added to rental profits and offset against company costs to work out corporation tax liability when company accounts are produced.

[paulhe]

ok thanks for your answer

[markhewitt]

Starting with the accounts, obviously the profit on the disposal will go to the profit and loss account. You will need to make the following journals:-

1. Dr Bank x

    Cr Profit/Loss On Disposal Of Fixed Assets x

Being disposal proceeds

2. Dr Depreciation on Disposed Assets x

    Cr Profit/Loss On Disposal Of Fixed Assets x

Being depreciation on disposed asset (if any)

3. Dr Profit/Loss On Disposal of Fixed Assets  x

    Cr Cost - Disposal x

Being cost on disposed asset

I have assumed that there is no revaluation reserve.

With regards to tax, there is no capital gains tax chargeable. Instead, you would write back the profit/loss and treat the item as a chargeable gain.

This would be calculated as follows:-

Sales Proceeds (less selling costs)

Less: Original Cost (less purchases expenses)

Less: Indexation Allowance on cost (original date of purchase up to 31 December 2017)

Less: Improvements

Less: Indexation Allowance on improvements (original date of improvement up to 31 December 2017)