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HMRC internal manual

Company Taxation Manual

Building societies: application of CT: profits on mortgaged properties sold

The Case I computation should include any profits or losses arising on the realisation by a society of properties mortgaged to it provided that, as regards properties to which the society has become absolutely entitled, they have not been retained as investments on fixed capital account.

Where a society is in possession of a mortgaged property (usually as mortgagee in possession) which it sells to realise its security a profit is unlikely to arise as the society is only entitled to retain the amount outstanding under the mortgage and any costs associated with repossession. Any ‘profit’ in excess of the mortgage is then accounted for to the mortgagor or other person entitled to the proceeds, for example, an insurance company where a claim under a mortgage indemnity policy has been made.

The computation of the loss incurred on the realisation of a property may include any unrecovered mortgage interest credited to the ‘income and expenditure account’.