PPR Question on Converting home to flats and selling one.

PPR Question on Converting home to flats and...

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A client owms & lives in a property and has done for about 4 years.  This is his only property.  During that time he has gradually been converting the house into 3 Flats(A,B,C).  The first completed flat is the one he has been living in while he completes the other two. 

Upto now there has been no separation of the title deeds.  What  is now happening is that the client is selling the flat he is living in (A) and moving into Flat B and, pro-tem using Flat C as a Home Office and has no plans to rent it out.  Planning B + C to be long term holds.

As he sells (A), this triggers the time for the Freehold to pass to a Flat management Co. and for 3 units to legally exist rather than the original 1.

My thoughts are that the sale of Flat A is his PPR and thus doe not potentially attract CGT.  Flat B becomes his PPR.

Flat C is not part of his new PPR - CG64305 - and will be a taxable disposal if he sells it at some future date.

It would be prudent at this stage to have a professional valuation of Flat C as a base cost.

Am I on the right track?  Thanks

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By pembo
23rd Jun 2010 12:24

not so sure

This area is covered by http://www.hmrc.gov.uk/manuals/CG4manual/cg65200+.htm 

Think this depends on the value of the house before the conversion and the 3 flats after taking into account what he has spent on the conversion. PPR should cover most of it I would imagine but HMRC may argue that the element of gain attributable to the conversion alone is taxable notwithstanding PPR especially given the timeframes.

there are worked examples in the link.

pembo

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