Capital Gain Calculation for Second Home

I think I know the answer to this one but I'm not certain, it relates to PPR and transfer of land.

Client owned House A and his mother lived at House B which was adjacent. Client's mother died some years ago and he inherited House B (which was later transferred into 50/50 owenship with client's wife). Various improvements to House B were made, it was rented out for some years and then sold last year for a profit, which even after taking into account improvements, the split ownership and the capital gains allowance will still amount in some capital gains tax, the client never lived in House B so if wouldn't attract any PPR relief. After acquiring House B but before selling it the client moved from House A to House C some distance away, at the time House A would have attracted full PPR relief and no CGT paid.

So far so good - however two of the improvements to House B involved the acquisition of land, one was bought from a neighbour, client has the records and I am including the value of the land as an improvement in the calculation. The complication is that some land was transferred from the deeds of House A (the clients old private residence) to House B, the value at the time would only have been a few thousand (based on the value of the other similar land acquired at arms length around the same time).

The client had initially wanted to include this land under the improvements - but clearly this is not right as there was no cost to acquiring the land - it was freely transferred. My question is would any PPR attach to this small section of land, which at one point had been part of the Client's PPR? TCGA 1992 s222 refers to disposing of an interest in:

"(b)land which he has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area"

This criteria appears to be met and had this land been disposed of with House A it would have qualified fully for PPR relief, when the land was transferred to the deed of the second property it still remained under the ownership of the client, although it ceased to be part of the principal residence at that point.

Any advice welcomed.


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19th Jun 2012 19:44

How could it "it still

How could it "it still remained under the ownership of the client" if it had been transferred to property B. Regards Peter

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Hi Peter, it would still have been owned by the client because at the point of transfer he owned both properties, Property A being his own by purchase and Property B having been inherited (actually possibly a little more complicated by this as I believe House A would have been in both his and his wife's name whereas at this point House B would have only been under his name and was transferred to joint ownership at a later point).

I'm just not sure whether by bundling the parcel of land with a separate property it loses it's eligibility for PPR relief. if you sell a portion of land attached to your principal residence you can get relief (subject to size restrictions) and if you use part of your property for business (exclusively) you get relief on the non-business part. What has me doubting whether the relief is available here is that this small portion of land has:

1) Been attached to a property which would not normally be eligible for relief.

2) Been sold some time after the remainder of Property that did attract relief was sold.

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20th Jun 2012 08:12

Ok that's a bit clearer. I do not see that PPR applies to the disposal of house B. He never lived in House B as an owner so PPR on the section of land does not apply. Regards Peter

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By MJShone
20th Jun 2012 09:16

I don't think PPR applies

Initial reaction is that this is similar to the situation where your client sold house A (all PPRd and good) but retained some of the land. (Ignore house B for now.) Had he sold the land with house A, he would have got PPR on the land. However, he didn't sell the land with house A. In that situation, you would be scuppered - see CG64377.

I think the fact that the land retained happened to become part of house B is irrelevant.

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20th Jun 2012 10:09

Use not retention

I would say it is the use of the land at disposal, rather than the fact that he still owned it, that is relevant here. As you say, TCGA s222 (1)(b) refers to:

b)     land which he has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area.

'Has' being the operative word. So the PPR relief is only available for land in use as the garden or grounds of the PPR (or former PPR) at the point of sale. In this case, it would appear that it had ceased to be used as the garden or grounds of the PPR (House A) before disposal and started being used as the garden of House B by the tenants and, therefore, does not attract relief. If it had remained in use by House A while House B was developed and was then sold to the purchaser of House B to be used by House B going forward, I would say that PPR relief would still be available. Although the legal title may have been changed to add that parcel of land to House B's grounds, it would still be owned by the owners of the PPR and forming part of the garden/grounds of the PPR at the point of disposal.

It is not strictly correct to say that there is no cost. The original cost of the land (i.e. a proportion of the cost when House A was bought) would be allowable - but this may not be very much!


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Thanks for your views on this. My initial reaction was that relief would not be available, but then I got myself in a muddle looking at the legislation.

You have a point Cathy that the land does have a cost attached at the point of purchase of Property A, though this is likely to be very small and also potentially very difficult to define.

Thanks again.

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25th Jun 2012 15:13

Any value will reduce CGT

I suggest that you ask a local valuer or just make an guestimate and make sure you declare it.  HMRC may just accept your figure

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06th Jul 2012 17:28

Do house A and B have seperate deeds. Regards Peter

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