Hello.
Say i have a limited company. I charge it rent for the use of a room (like use-of-home-as-office to a sole-trader). It goes into my tax return as income from land and property each year, and i claim a proportion of expenses (eg light heat etc).
OK.
So, say i sell my house (it is my PPR). I am guessing £40,000 lettings relief would not be applicable (as it was not rented as residential) but then, only part of the house (a room) was let. Does the final 36 month exemption apply? Would the gain be divided by the floor space and time rented out? Would business taper relief then apply?
I ask because i have been to see 2 accountants and got 2 different answers (both chartered by the way..) so, obviously i am not looking for a free ride - i just want to get a feel for which one is on the right track and then will go to them for the actual work.
Thank you for your time.
David
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Replies (4)
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CGT on home
Taking your points in turn:
1. The £40,000 residential lettings relief will not apply as you correctly point out out that the letting was not residential.
2. The 36 month exemption applies in all circumstances to any property which at any time during its ownership has qualified as the principle private residence.
3. For any period when the PPR relief does not apply in full the gain is time apportioned for this period and further apportioned on a just and reasonable basis between PPR and business use. Business asset taper relief would apply to the resultant gain. Please note that the rate of BATR is calculated by reference to the whole period of ownership and not the period that the asset was used for business.
There is also a further permitted absence under Section 223(3)(a) TCGA 1992 for a period, or periods, of up to 3 years (cumulative) where PPR status may be maintained if both before and after the period, or periods, of absence the whole, or part, of the dwelling house concerned was occupied as PPR.
Have you consulted a tax practitioner; either ATT or CTA (ATII)?
I think Mark has missed a point
What Mark describes is correct except where the company does not have exclusive use of the rooms in question.
Provided the company does not have exclusive use of the rooms the property remains fully residential for CGT purposes. So you want a licence agreement between the company and you as property owner that clearly states the restricted use the company may have. Such a restriction could be 8:00am to 6:00pm only with you being able to "store" a picture on the wall throughout anyway.
In your post you said "split cost like a sole trader" or words to that effect. As the rent paid is Schedule A income the rules as to what cost is allowed against it are different.
So now you have 2 more answers!
So no CGT
So basically what David James is saying is that provided there is some small very small aspect of non-commercial use for the room there will be no CGT inmplications.
My understanding has always been you can claim a proportion of all house costs as well as more specific costs against the room rented out.
The profits from the rent are obviously free of national insurance and can be used to use up the current 10% income tax band if the rent level is set right and assuming the director is paid £5225pa and pays the rest as dividends.
Licence agreement
It get you out of the whole 'use of home' nonsense.
I've knocked together a simple licence agreement that I think will do the job. It is licensed under Creative Commons so you are all free to use it. No warranty though - it hasn't been tested as yet.
http://docs.google.com/Doc?id=d5jw75x_0hf42n7
NeilW