A client has an annex which he currently rents out. He wants to legally establish two residences and sell the "annex" of as a separate dwelling. In order to avoid CGT my understanding is that he should move into the annex and sell this as his PPR.
Is this correct please?
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No
You would be more likely to shoot yourself in the foot that way.
Go away and read http://www.hmrc.gov.uk/manuals/cgmanual/CG64230+.htm, in particular http://www.hmrc.gov.uk/manuals/cgmanual/CG64240.htm, as well as all the cases where people have "just moved in" and have not got PPR treatment, and you will see.
He can make the annex his PPR going forward by moving into it (provided he really does) but then he would of course lose it going forward on the other property. And it would do nothing to cover that part of the gain that has already accrued on the annex when he moves in (i.e. it wouldn't be retrospective).
The point though John
Is that up until now the annex has been part of the existing dwelling house, and so its sale is already covered by PPR. Moving into it to get PPR is, therefore, foolish for the very reason that you have identified. Even more so because I do not believe the OP understands the quality of occupation issue.
If you are right that it is currently a single property for PPR purposes I'll stand corrected. My understanding was that it is and always has been two separate properties.
But if your understanding is right there is no need for the vendor to take any action whatsoever to minimise his CGT exposure.
Oh dear
I have just reread the OP. I see that the annex is currently being rented out, which would prevent it being occupied as part of the main residence currently.
If it had been historically though, PPR would still apply with lettings relief.
Insufficient information as always.
I suggest the OP goes and sees somebody with the necessary skills to come up with an appropriate solution.
Thank you for your comments including the manuals. I have gone away and am reading them as you suggest.
Not just tax issues here
My property has a granny annexe which we used for it's intended purpose.
However, the planing permission specifically stated that even though it is completely separate to the main bungalow (semi detached) it can never be sold separately to the rest of the property
Marion, By having to sell it as one, are you expecting to get PPR on the whole property? Or if Granny has been living in the Annex (presumably with its own council tax), will you lose PPR on an appropriate proportion of the total sale price?
@naughtical
I actually hadn't thought about it but it is a separate access and has never been used as part of the home so I had assumed that it would be taxable when we downsize in the end, It does carry it's own council tax when lived in but is exempt when empty.
I can't see that there would be any way to avoid mixed use - but suggestions obviously welcome
crystal clear
Now I see..it's so obvious in those easy to read manuals:
"This is that no building can form part of a dwelling house which includes a main house, unless that building is appurtenant to and within the curtilage of the main house"
Anybody that has difficulty
With HMRC's manuals (impertinence and cartilage are explained elsewhere) ought to not be advising on tax matters in the first place in my view.
Now pull the frigging trigger.