CGT on property

CGT on property

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A husband and wife client are looking to buy a large detatched property jointly which will be their main residence. They own no other property. They are planning to split the property into two dwellings and sell one of them off whilst living in the other one. I cannot find this scenario on the HMRC site or in tolleys vat manual. However, I recall reading in the past about a similar situation and that there was a CTG issue and that main residence relief would not apply in full.

Can anyone offer any guidance?
Barry Shaw

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By ACDWebb
23rd Jul 2007 12:18

Look at
CG65200 - Private residence relief: purpose of realising gain et seq if they are going in with the immediate intention of splitting the property, and possibly also CG65266 - Private residence relief: realising gain: conversion into flats. This latter would require them to establish the whole property as PPR and I rather suspect that the intention is never there to do so.

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Euan's picture
By Euan MacLennan
23rd Jul 2007 13:47

Semi-detached
It is clear from your question that your clients have no intention of living in the entire house as their residence before dividing it, so they will not get any PPR relief on disposal of a flat/wing which was once part of their residence.

In effect, they are buying two semi-detached properties. They are going to live in one of them and will eventually benefit from full PPR relief from capital gains tax, but will get no tax relief on loan interest or any other expenditure on the property. They are starting a trade with the other one and will be subject to income tax, not capital gains tax, on their profits after deducting the cost of loan interest, alterations, redecoration, etc.

Whilst Alan has pointed you in the right direction of the CG manual, it is a very badly written manual with lots of separate pages containing just one cryptic sentence each and sometimes, not much indication of what it is talking about. It would be so much easier to understand the context if they had strung the sentences together into paragraphs on single pages for each topic.

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