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Mixed use of asset for CGT

Mixed use of asset for CGT

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A property was initially used as a client's private residence. It was then used as a business asset and, several years later, became his private residence again.

The property was, therefore, either his private residence or his business property, but was never used simultaneously for both.

I am aware of the anomaly in the interaction between taper relief and principal private residence relief but I understood that this only applies where there is mixed use at the same time (with, for example, shops, pubs etc). Indeed, Sch A1 para 9 CGTA 1992 is headed "cases where an asset is used at the same time for different purposes".

The tax inspector is claiming that the mixed use provisions apply in this case and I'm claiming they don't.

Any confirmation of the position (favourable or otherwise) would be appreciated.

Stephen Kendrew

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By AnonymousUser
04th Aug 2007 09:35

Mixed use?
I would argue that it is the other way around.

If part of a residence were used for business purposes throughout then s.224 excludes that part from the PPR provisions. I would therefore argue that the gain on that business asset should attract BATR in full.

On the other hand, if the same part (or whole) of the residence has been used as PPR at some time and business asset at others, I think that is where the anomaly kicks in - it is a sale of a single asset that has been used for business and non-business purposes, and so any gain needs to have mixed taper applied to it.

But what if part of the property were used wholly for business purposes except for the last 12 months (PPR)? Last 3 yrs of that gain would become exempt, but presumably at a cost of some non-business taper applying to the residual gain.

When, oh when, is this ridiculous situation going to be rectified?

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By Taxboss
06th Aug 2007 09:16

Taper troubles
Sch A1 para 2 makes it clear that where an asset has not been used exclusively for business purposes throughout the period of ownership, then for taper purposes it is necessary to split the gain into 2 notional components and apply the taper rules separately.

Sch A1 para 9 covers the mixed use situation and it is only that paragraph that contains a reference to "relevant fraction of mixed use period" and effectively signifies a restriction of taper relief.

The approach taken in these paragraphs is quite different. The restriction in para 9 is actually worded in terms of restricting "the relevant fraction" of the period of ownership NOT a restriction on the available taper relief, and I believe HMRC's position on tainted taper relief generally is legally incorrect. Perhaps we await a test case on this point.

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