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Capital Gains Tax on sale of business premises

Is there a capital gain?

My husband/wife clients are a partnership who have, until recently, run a nursery from a property which was their main home until 2013. As the business expanded, more and more of the property was given over to the nursery business, until it became unfeasible for my clients to continue living in the property. They applied to the council for change of use from residential to business premises and from that time until the business closed, the property was used solely for business purposes.

My clients did not purchase another property to live in but rented a property nearby.

The business ceased last year, and the property is about to be sold. I assume that there would be a capital gains tax implication given that the property has been used partly for business purposes for many years, and solely for business for the past 5 years. However my clients have been told by another accountant that there is no capital gain because the property is their only property, so is exempt. Surely, because they have used it for business purposes for much of the period of ownership, this is not correct?

I understand that Private Residence Relief would be available for at least some of the period in which my clients lived in the property, although would expect an adjustment to be made because the home was partly used for business during this time. I would also expect no private residence relief to be available after 2013 when my clients moved out and the property was solely used for business purposes. 

Am I missing something incredibly simple?

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22nd Feb 2019 17:00

Yes, quotation marks. As in, they have been told by an "accountant" that there's no CGT.

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to Tax Dragon
22nd Feb 2019 17:04

Well indeed, my thoughts exactly! But the accountant they have spoken to is indeed a well-respected local accountant known to me. Apparently they were also told that because the property isn't "owned" by the business (their business is a partnership and they own the property in their own names, obviously) then there would not be any CGT on business use of the property.

Reading back, it looks absolutely ridiculous, but I was seriously doubting myself as this "advice" has been given to them by someone with a larger business and more experience than myself.

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to sparkler
22nd Feb 2019 17:14

sparkler wrote:

>Reading back, it looks absolutely ridiculous, but I was seriously doubting myself as this "advice" has been given to them by someone with a larger business and more experience than myself.

It's actually frightening that someone holding themselves out as an accountant could offer that "advice". We see some nonsense from people on here but rarely as bad as that. I imagine the problem is that he is telling your clients what they would like to hear.

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to Accountant A
22nd Feb 2019 17:29

I'm holding out hope that my clients have simply misinterpreted what he told them. I intend to speak to him myself to clarify the information provided, but just wanted to ensure that I was not barking up completely the wrong tree before I did so.

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to Accountant A
22nd Feb 2019 17:45

Accountant A wrote:

I imagine the problem is that he is telling your clients what they would like to hear.

Or they are hearing what they would like to be told.

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22nd Feb 2019 17:11

sparkler wrote:

.... there is no capital gain because the property is their only property, so is exempt.

This is an all too common misconception.
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By Matrix
22nd Feb 2019 17:59

They still get the last 18 months. The gain will need to be split between private and business use before they moved out and then wholly business use except the last 18 months.

Why are they consulting another local accountant?

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22nd Feb 2019 18:30

Something useful you could bring to the table: private residence relief applies to a gain attributable to a dwelling-house.

Does the change of use with the council mean it's no longer a dwelling house? If so, do they have time to change it back before it's sold? (Or has that already happened... what are they selling it as, business premises or a home?)

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to Tax Dragon
22nd Feb 2019 18:39

TaxDragon - I believe they have successfully applied for change of use back to a home before the sale.

Matrix - in answer to your question, I thought it would be in my clients' best interests to engage an experienced property accountant for a one-off piece of work to calculate the taxable gain on the sale. I have never dealt with such a transaction before and was concerned I may miss something important, as the transaction appears fairly complex to my inexperienced eyes, and I wanted to ensure they ended up with a correct calculation making use of all possible reliefs. However I am now regretting this suggestion given the seemingly spurious information they have so far been given!

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22nd Feb 2019 19:02

I think we need to see some numbers.

The accountant might be correct in that no CGT is due and it may be the rationale that has been incorrectly reported.

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22nd Feb 2019 21:11

@ sparkler (OP).

I would have to say that Lion's 19.02 post is very probably correct, with regard to the clients' having misinterpreted the rationale for the other accountants' "no CGT payable" advices.

That said, a letter/email to your clients is strongly recommended, asking them to forward to you:-

(i) Copies of correspondence with the other accountants,
(ii) A copy of the other accountants' calculations (albeit probably as yet provisional) to support their advice that a Nil CGT liability will arise [unless of course already included in (i)].

If the calculations per (ii) have not yet been received by the clients, then they should specifically ask the other accountants for them.

YOU will presumably ultimately be responsible for, in due course, preparing and submitting the relevant Tax Returns which will include the Capital Gains figures (notwithstanding those Capital Gains figures having been prepared by other accountants); and for therefore advising the clients of the CGT liabilities, if any, which arise on those Returns. Such indeed is your justification for requesting the clients for the information referred to above.

Obtaining that information promptly from the other accountants (via your clients) will enable you to hopefully (i) assess whether your clients have correctly relayed to you the information which they state they have received, and to (ii) determine whether the other accountants' advices are in principle correct.

Whilst you have modestly advised that such CGT matters are not within your comfort zone, you may already have on file sufficient information to "have a stab at" the CGT liability: I would recommend your doing so.

In short, there is no need for your being unduly anxious at this stage, and you should await receipt of the information which I have recommended you to obtain NOW from your clients: the picture should then become clear.

Basil.

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