I have a client who has held some waste land for 32 years (Value then £1,000). It has always been his intention that at some point he would apply for planning permission to build a house on the land and retire there. Eighteen months ago he applied for and was granted planning permission and he started building and finished building recently (build cost £300,000) and will be moving in next month. He will keep his old house but make an election for PPR on the new house, live in it for a year, move back to his old house and sell the new house for £750,000 and change his PPR back to his old house. Question: does the calculation of PPR. i.e., the period of ownership of the "Dwelling" start from 32 years ago (when there was no dwelling in existence), or from the date of the completion of the building of the dwelling, i.e., last month. If it is from the date of building completion the whole gain will be exempt from CGT. If is is from 32 years ago only 18 months will be exempt, i.e., 3/66 of the gain?
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It starts, if it starts at all, from the date he moved in.
Why is he moving into the new house? Are you sure his occupation will meet the quality conditions.
Yes the calculation takes into account the gain over the whole period of ownership.
How you split it between the land and the building is the interesting question.
On the quality point, your client moving into a house he has already decided to sell, and then moving back into the same house as he was in previously looks very odd indeed.
When he sells, will he sell only the house, or the land as well? If both I would conjecture that the valuation for sale would have to separate the house from the land, and the calculations made separately, such that the house has a much shorter period of ownership and so a higher overall percentage of PPR than the land does.
I'm not so sure that it would delay the trigger. The granting of a lease on land triggers a charge to CGT.
More info at https://www.gov.uk/government/publications/land-and-leases-the-valuation...
You should ignore SteLacca's misplaced "conjecture". The period of ownership for the house began when the land was acquired. See the Henke case. http://www.bailii.org/uk/cases/UKSPC/2006/SPC00550.html
An apportionment will only be necessary where any part of the land is not garden and grounds at the time of the disposal of the house. Anything sold after the house is sold will not attract PPR (Varty v Lyons). Part disposals are subject to the A/A+B formula.
Well you live and learn. Tomorrow morning's reading in full (got a seminar in 10 minutes).
Portia
Sorry to come back on this, but I've read the full judgement now, and the ruling with regards to PPR was:
"(5) an apportionment is required, to limit private residence relief to that proportion of the period of ownership of the land during which Old Oak House was the Henkes' only or main residence".
This doesn't tally with your interpretation that PPR is available from acquisition of the land.
I never said that PPR was available from acquisition of the land. I said that the period of ownership of the land (for the purposes of computing the amount of PPR relief) begins at acquisition.
For example, I buy a piece of land on 10 September 2005. I build a house on it 10 September 2013, which I then live in as my main residence until I sell it today.
You were suggesting that we separately value the land and the house today, and compute separate gains on the house and land with only 2/10 of the land gain being covered by PPR, but all of the house gain being covered by PPR.
We do not. We calculate one gain sale proceeds, less cost of land and cost of house. 8/10 of that gain is taxable, such that the period of ownership of both the land and the house (that was built on 10 December 2013) commences on 10 September 2005. That is the decision in Henke.
Portia didn't say that PPR was available from the date of acquisition of the land, but that the ownership of the house was deemed to commence on that date.
I haven't read the case and I am not going to (life is too short) but I am baffled if the effect is to prohibit apportionment of the gains in a case like this, as the effect of doing so can be so anomalous.
You would be better to post this as a new question not piggyback
I need some assistant on calculate CGT.
The Property acquired 26yrs ago Jointly owned.
It was used as a Shop for 10yrs and rent it out for the pass 16yrs
Disposal was 2014/15 tax yr, Can I reduce the CGT by the MA - £3,140.00 ( Couple) ?
And since they are on pension, Do I have to use their pension figure as Income or use
Personal Allowances after any Gain.
You would be better to post this as a new question
not piggyback this one.I need some assistant on calculate CGT.
The Property acquired 26yrs ago Jointly owned.
It was used as a Shop for 10yrs and rent it out for the pass 16yrs
Disposal was 2014/15 tax yr, Can I reduce the CGT by the MA - £3,140.00 ( Couple) ?
And since they are on pension, Do I have to use their pension figure as Income or use
Personal Allowances after any Gain.
Degree of permanency
In order for main residence relief to apply, the property must be occupied with some degree of permanency (see Goodwin v Curtis and other cases).
If he moves in to the property with the intention from the outset to move out again after a year, you may find that HMRC argue that there is not the required degree of permanency.
I am not saying I would claim PPR relief, but worth caveating this to the client if you make a claim.
CGT is on entire period of ownership, PPR on occupation only
PPR only starts when the property was occupied and election made. PPR can start before occupation in very limited circumstances - see http://www.hmrc.gov.uk/manuals/cgmanual/CG65003.htm. Because OP's client took so long to start building I feel the pre-building period will not be PPR. He may be able to get PPR from when planning was granted subject to election.
But watch out for CG65200+
OP says client had intended to retire in new house but now is thinking of only living there for 12 months. This change of plan may cause problems http://www.hmrc.gov.uk/manuals/cgmanual/CG65200+.htm and prevent any PPR.