B & B CGT question

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Husband and Wife client have a B & B business that they have run for many years. They are looking to sell their home (and as a consequence the B & B) will be sold.

Their proportion that is their home will be completely covered by PPR relief. I believe that the remainder will qualify for Entrepreneur's relief. For arguments sake lets say the proportions are 50% either way.

Property sold for 1 million.

£500,000 covered by PPR.

Now, I have come across passages in Tolley and in HMRC's CGT manual which seem to imply that the chargeable business element can be reduced by lettings relief. I found this quite strange but it clearly mentions 'boarding or guest houses, or indeed hotels'.

Has anyone come across this before who can clear this up for me as the tax saving wouldn't be insignificant if both H + W are eligible to claim lettings relief for the B & B proportion.

Thanks in advance.


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By tonycourt
15th Nov 2017 17:31

My view is that s.222 will not apply to the part of the property used for B&B for the period for which it was used for that purpose. I believe it falls at the first hurdle; i.e. s.222(1)(a) which says:

"This section applies to a gain accruing to an individual so far as attributable to the disposal of, or of an interest in—
(a)a dwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, his only or main residence, or..."

In so far as it was used as B&B accommodation it can't at the same time be the owner's "only or main residence".

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Replying to tonycourt:
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By Portia Nina Levin
15th Nov 2017 18:07

I disagree Tony. Either it is a dwelling house that has been used (wholly or in part) as the taxpayer's only or main residence or it hasn't.

If part of the main residence has been used other than for the purpose of being a main residence, such as for use in the business, then s224(1) excludes it if it is used EXCLUSIVELY for business purposes. It is that which requires apportionment.

However, since the gain attributed to B&B use is use of the dwelling house for letting, it attracts lettings relief.

There's the taper relief case on a guest house, the name of which I can't recall, to guide us all.

Edit: You need to contrast the example in CG64739 (where part of the dwelling house is used for the trade), with the Owens case and HMRc's commentary at CG64723, which concerned an annexe.

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