Furnished Holidays lettings/PPR

Furnished Holidays lettings/PPR

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What are the implications for a husband and wife who currently own a property as a partnership and run it as furnished holiday lettings business, (been run for 10 years as such) if they cease the business and then go to live in the property as their PPR.

I appreciate there is no CGT on the cessation of trade, but if they sold the property the following situations what would happen?
a) They live in the property for a further 5 years as PPR
b) They live in the property for a further 15 years as PPR

Would this be treated as a distribution of partnership assets to partners and the base cost of the asset for each partner will be the market value of the property at the date of cessation of trade as reduced by the gain?

Or would the gain be split on a time basis between a business asset and PPR?

Your replies would be appreciated

Thanks

Steven

steven heather

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By AnonymousUser
07th Sep 2007 09:40

HAven't seen in practice, but thoughts for what they're worth!
If the business is run as a husband and wife partnership then, from a tax point of view, when the FHL business ceases there are no CGT consequences - the partners own the underlying assets (as you obviously appreciate). When the property is eventually sold the base cost will be the cost when acquired as a FHL.

Can you get PPR lettings relief on FHLs? I don't see why not - they're let as residential accommodation rather than offices etc. I've heard comments that you can't get PPR letting relief if the property first became your PPR after it was let. However, I can't find anything in etiher the leglislation or the manuals to say that this is the case.

The potential problem you have is s224(3) which denies relief where the property was acquired "wholly or partly for the purpose of realising a gain from the disposal of it..." However, I think many owners of FHLs purchase them for the income. I don't know if the Revenue would take the "partly" point - they don't with the family home, but FHLs might be different.

Assuming your clients sell the property at the end of the periods in (a) and (b), your CGT calc would be:
(a) PPR relief of 5/15. PPR letting relief for the 10 exposed years, limited to lower of 5/15 and statutory max (£40k stat max applies to each of husband and wife) . Remaining gain then gets BATR.
(b) PPR relief of 15/25. PPR letting relief, limited to lower of 10/25 and stat max - as above. BATR - as above.

Am I missing anything?


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