Dilapidations Query

I understand that receipts for dilapidations may be treated in one of three ways depending on the circumstances.

A) If the landlord makes repairs to restore the property to its original condition then the net cost of the repairs is claimed as an expense i.e. cost of repairs less dilapidations payments received.

 

B) If the landlord continues to rent the property without making the repairs then the dilapidations receipts are to be treated as rental receipts (because the property in the dilapidated state commands a reduced rent).

 

C) If the landlord sells the property then the dilapidations receipts are treated as a capital receipt which is subject to CGT.

 

There is explained in the paragraph on dilapidations in the Property Income Manual which is here

 

http://www.hmrc.gov.uk/manuals/pimmanual/PIM2020.htm

 

However we have a rather unusual situation as follows:-

 

Tenant moves out and a dilapidation payment is negotiated and paid to the landlord.

Landlord then places property on the market for sale.

 

We had therefore originally intended to take the dilapidations receipt and sale receipt as being the total proceeds for CGT purposes.

 

However before any sale took place the landlord passed away and the property passed onto his estate and there has now been an offer for sale which will form part of the estate and is therefore not subject to CGT.

 

My query is in relation to the dilapidations receipts received prior to death. How are these treated?

 

They wont be rental receipts as there was a definite intention to sell.

 

Are they monies received in advance of a sale which reverts to the estate?

 

Or are they a capital receipt on their own received prior to death, which would be subject to CGT?

 

If they are subject to CGT I am presuming we would have to look at overall position and apportion any gain or loss on the basis of receipts received before death by the client and receipts received after death by the estate.

 

Any comments would be appreciated.