Private residence conversion - loss of PPR?

Private residence conversion - loss of PPR?

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I have just seen a client who is doing the following:

 *Buiding a new detached home in the garden of his current house which he will move into and occupy as his new main residence.

 *Converting this existing main residence from a 4-bed detached into two 3-bed semi's.

I have no problem with the new build, and this becoming his new PPR, but I'm a bit stuck on the what I do with the conversion! Once he converts he wants to sell one and rent one out. Does he lose his old PPR relief? Will we need to crystallise this relief by 'selling' to another entity prior to development?

I'm really scratching my head on this. Any/all help appreciated.

Thanks

Monty

Replies (4)

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By Steve Knowles
13th May 2011 15:47

Conversion/development

This appears to be a situation where TCGA92 S334 (3) applies - basically the PPR exemption is still there, but is restricted by reference to expenditure "wholly or partly incurred for the purpose of realising a gain" There is an example at CG65270 on HMRC website.

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By gbuckell
16th May 2011 17:47

New house

You should be concerned about his new home. When did he buy his existing PPR?

For illustration let's assume he bought it in 2006. He builds his new house in 2011 and moves in. He sells his new house in 2021. What is the PPR position?

The new house has been his PPR since it was built, i.e. 10 years. However, e has owned the land for 15 years so he is only eligible for 10/15 years PPR relief. The fact that the land was part of his earlier PPR for 5 years is irrelevant.

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By unclemonty
17th May 2011 08:18

Some more information

Thanks for the replies, chaps.

More info.

*Existing residence was purchased in 1995 for £126k

 *The new detached house will be occupied as PPR, but only for around two years, when they plan to sell up and emigrate.

I've been thrown a bit by gbuckell's reply. As the new detached property will have it's own title and deeds does this just not begin it's 'life' when it's built, and the family move in, thus creating a new PPR? I wasn't aware that historic ownership of the land would affect this, (although even as I type, I can understand that this clearly must have some effect).

 

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By gbuckell
17th May 2011 10:23

When is asset acquired?

The key is that the land on which the new house is built was acquired in 1995 as part of the old PPR. Once the land is separated from the old PPR it ceases to benefit from any PPR relief - see Varty v Lynes as discussed in CG64377 http://www.hmrc.gov.uk/manuals/cgmanual/cg64377.htm. The scenario is thus analogous to the one where a person buys some land and builds a house on it. HMRC accept that a delay of up to a year (or "rather longer if there are good reasons for exceptional delay") does not affect PPR relief (see CG65003 http://www.hmrc.gov.uk/manuals/cgmanual/cg65003.htm). I struggle to see that a delay of 16 years will qualify!!

The solution is to arrange a disposal of the plot of land prior to it being separated from the existing residence. Perhaps a settlor interested trust could be used. The gain on this disposal then remains eligible for PPR relief. Going forward the land acquisition date is now 2011 - not 1995 - and so full PPR relief will be available for the later disposal.

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