OVERVIEW
Overview
Capital gains tax is not settled at the moment of sale; it is determined by the history accumulated since acquisition. The exemption for a single house per household turns on when the holding and residence requirements are met, and land expropriated for public works is subject to separate relief provisions. Once a house becomes a redevelopment membership right, the count of houses and the exemption analysis become complicated again.
VALUE Tax & Accounting first confirms the holding and residence history, household composition and any other houses owned, before the sale contract is signed. Because the relief rate on expropriation compensation varies with the form and timing of payment, we review it from the negotiation stage, and redevelopment membership rights are assessed against the date the management disposal plan was approved. For property acquired long ago, we assemble evidence of the acquisition cost in advance so that deductible expenses are not disallowed.
KEY ISSUES
Key tax issues in capital gains tax
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01
Single-house exemption
The exemption applies only where the household as a whole owns a single house and the holding requirement is met, together with the residence requirement if the property was in a regulated area at acquisition. Exceptions are recognised for temporary second homes, inherited houses and households merged to care for parents, so the composition of the household should be checked before any sale.
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02
Expropriation for public works
Land expropriated for a public works project may qualify for tax relief under the Restriction of Special Taxation Act. The relief rate varies according to whether compensation is paid in cash or in bonds, and whether the bonds are held to maturity, so this should be reviewed at the compensation negotiation stage.
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03
Redevelopment membership rights
Once approval of the management disposal plan converts a house into a membership right, both the count of houses and the exemption requirements change. The outcome differs sharply depending on whether the transfer occurs before or after approval, so the timetable must be considered alongside.
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04
Registered rental housing and the residence
While the requirements for a registered rental house are maintained, the transfer of the residence may qualify for exemption. Failure to observe the mandatory rental period or the cap on rent increases can lead to relief already granted being assessed back, so the requirements must be actively managed.
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05
Evidencing acquisition cost and expenses
For property acquired long ago the contract is often missing and the acquisition cost cannot be established. A converted acquisition value may be applied, but it can be less favourable than the actual cost, and capital expenditure is deductible only where evidence exists.
HOW WE HELP
How VALUE Tax & Accounting responds
Pre-sale assessment
We check household composition, the holding and residence history and any other houses owned, then calculate whether exemption is available and the likely tax before the contract is signed.
Expropriation and redevelopment timing
We design the relief requirements and the timing of transfer together, against the form of compensation, the date of expropriation and the date the management disposal plan was approved.
Acquisition cost and expense records
We assemble records of past transactions and evidence of capital expenditure so that the maximum deductible expense is recognised.
FAQ
Capital gains tax FAQ
Q Is capital gains tax relieved when land is expropriated for public works? expand_more
Tax relief applies to the expropriation of land for public works under the Restriction of Special Taxation Act. The rate varies according to whether compensation is received in cash or in bonds, and whether the bonds are held to maturity, so it should be confirmed at the negotiation stage.
Q How long must a property be held for the single-house exemption? expand_more
The holding requirement must be met, together with the residence requirement if the property was in a regulated area at acquisition. The test applies to the household as a whole, so houses owned by a spouse or other household member must also be checked.
Q Is a redevelopment membership right treated as a house on transfer? expand_more
From the date the management disposal plan is approved it is treated as a membership right rather than a house. It is nevertheless counted as a house when assessing the exemption for another property, so the outcome depends on when the transfer occurs.
Q Is the residence still exempt if a registered rental house is also owned? expand_more
While the requirements for a registered rental house are maintained, including the mandatory rental period and the cap on rent increases, the transfer of the residence may qualify for exemption. Breaching them can lead to exemption already granted being assessed back.
Q What if the acquisition cost of a long-held property is unknown? expand_more
Where the actual acquisition cost cannot be established, a converted acquisition value may be applied. The converted figure can come out lower than the actual cost and prove unfavourable, so it is better to look first for the original contract or banking records.