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Mixed use of property - PPR, then FHL - now sold.

Will Entreprenuers' Relief be due and, if so, how is it apportioned?

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Client bought a property on 30/4/10 for £100K as his PPR. Lived there until 30/6/10, then is used as a Furnished Holiday Let (satisfied all the criteria). Then sold 31/3/16 for £250K.

In my mind, the gain of £150K firstly needs to be calculated after giving the PRR. I assume Lettings Relief is not available (or is it?), and so the gain will need to be split into periods of exemption (actual residence and final 18 months), then the taxable gain after reliefs is split again (according to time) between non-business asset and business asset, and the 18%/28% rate applied to the former and the 10% ER rate applied to the latter?

Is my methodolgy correct? I can't find it specifically referreed to in the HMRC manuals nor on any online resources.

Thanks.

Replies (10)

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By Ruddles
19th Jan 2017 16:43

Letting relief is available

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Replying to Ruddles:
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By mail.taxperfect.co.uk
19th Jan 2017 16:55

Ruddles wrote:

Letting relief is available

Thanks - Lettings Relief available as well as ER? Didn't think LR was available for FHL's as they are taxed as a business and thought LR only available on residential lets? Stand to be corrected though.

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By Portia Nina Levin
19th Jan 2017 16:53

1) Calculate the gain before PPR and lettings relief.
2) Calculate the amount of the gain that is exempt by reason of PPR and lettings relief.
3) Deduct 2 from 1.
4) The amount in 3 then qualifies for ER.

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Replying to Portia Nina Levin:
By Ruddles
19th Jan 2017 17:03

I agree with Portia - with one caveat. Although the legislation refers to a 'just and reasonable' apportionment - which the above most certainly is, it also specifically states that where the asset is used for non-ER purposes during ownership regard should be had to the length of time of such use (and not to the period of such use).

It is not impossible therefore that an Inspector would try for simple time-apportionment. After all, PPR does not exempt specific periods - it simply provides a means of calculating the amount of gain not chargeable.

(I seem to recall that the interaction of taper relief and PPR gave rise to endless argument over the anomalous outcome in some cases).

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Replying to Ruddles:
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By Portia Nina Levin
19th Jan 2017 17:11

Ruddles wrote:

... the legislation ... specifically states that where the asset is used for non-ER purposes during ownership regard should be had to the length of time of such use ...

No it does not. That only applies to associated disposals and this is a material disposal.

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Replying to Portia Nina Levin:
By Ruddles
19th Jan 2017 18:51

Brain-farts are catching

Though it gives rise to an associated (or is it material) question - individual owns a residential property that is let at market rent to his personal company (which it occupies as an office). If he sells the property on cessation of the company, no ER. However, if he were to retain the property and let it as FHL for at least 12 months and then sell he gets ER on the whole gain on the property?

No need to comment on the implications of using a resi property as an office.

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By Portia Nina Levin
20th Jan 2017 10:40

That is what the legislation says.

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By michaelblake
25th Jan 2017 22:06

Although if he only occupied the property as his home for a two month period and only ever intended o live there for such a short period HMRC may challenge whether the dwelling qualifies as his residence. Recent tribunal cases suggest that HMRC favour challenging short periods of occupation, arguing that they lack a degree of permanence and continuity required following Goodwin v Curtis. Surprisingly the tribunal seems to agree with them in many cases.

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Replying to michaelblake:
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By Portia Nina Levin
25th Jan 2017 22:35

Agreed, although there was that unfortunate young chap whose fiancee [***] off with another fellow, who won.

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By Portia Nina Levin
26th Jan 2017 11:14

The case where the fiancee [***] off with another fellow, and the poor chap who then lived in the house for only a couple of months is Morgan:
http://www.bailii.org/uk/cases/UKFTT/TC/2013/TC02596.html
I agree with Basil though (alarmingly), that in this case it is highly questionable whether PPR relief applies. I had missed the short occupation prior to Michael pointing it out.

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