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Posted Mon, 18 Oct 2021 15:44:02 GMT by RCH
We propose to sell our principle private residence through a prize draw and want to establish how HMRC are likely to treat the transaction? To effect the prize draw, we will sell tickets and once our target price has been met, will make the draw. The target price will be made up, as follows: Market value of the property Expenses of running the prize draw Charity donation Profit Stamp duty Legal cost (all parties) We envisage a conventional property sale would take place, with funds equating to the market value of the property being used by both parties’ lawyers to effect the exchange and completion of the sales contract. We therefore believe that the property would be treated, as normal, by HMRC, given the property is our PPR. However, we would like clarification on this? Furthermore, we would like to clarify how we would account for the income and expenditure of the ticket sales? I assume we would simple pay tax on any profit left after deducting: The market value of the property The expenses of running the prize draw Any charity donation Stamp duty Legal cost (all parties) Lastly, could all this be documented on our tax returns, or would we need to set up a company to handle the prize draw?
Posted Wed, 20 Oct 2021 16:26:16 GMT by HMRC Admin 9
Hi, 

HMRC would need to see the full facts (in writing) )to provide a a appropriate analysis of the overall transaction. You may want to seek independent professional advice.

Here are some pointers and links to HMRC guidance:

Operating a raffle is potentially a trading transaction and you may be liable to pay Income Tax on the profits from that activity:

BIM20000 - Meaning of trade

If the raffle is trading, the Income Tax rules allow a deduction for the market value of any asset put into the trade.

Income Tax (Trading and Other Income) Act 2005

So, if trading, then you will pay Income Tax on the value of the raffle tickets sold, less the value of the prize (when the raffle is launched) and any costs of operating the raffle. Appropriating the property into the trade would give rise to a deemed market value disposal for Capital Gains purposes under TCGA 1992, s 161(1)

CG69200 - Appropriations to stock in trade

However, the gain on the deemed disposal will be exempt under the main residence exemption in TCGA 1992, s 222 to the extent the property has been your only or main residence throughout your period of ownership:

HS283 Private Residence Relief (2021)

Donations to charity made by businesses that are claimed as a deduction against trading income must be made wholly and exclusively for the purposes of the business in order for a deduction to be due. Please see:

BIM45072 - Specific deductions: entertainment: gifts: exceptions: gifts to charities

There is more on general approach to the deduction of professional fees here:

BIM46400 - Specific deductions: professional fees

Yes, there will be appropriate sections on the tax return to report income and gains, derived from this activity, where required. Please see:

BIM20000 - Meaning of trade

Thank you. 

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