Residential Property for CGT or not?

Outbuildings to PPR always in business use in my client's ownership being sold to convert to resi

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My client bought a large farmhouse many years ago to use as her home.  It had a range of unattached outbuildings with separate access which she partly let out to other businesses and partly ran her own business from.  She is now selling the outbuildings with planning permission to convert to residential.  As they stand the buildings being sold are incapable of being lived in as they have no kitchen or bathroom facilities, not even water inside the buildings.  Extensive building works will be needed by the new owners to create rooms, insulate, install services etc etc.  The outbuildings have also never been used as part of the home, they have always had exclusive business use in the many years since she owned the property.  I am trying to determine whether the buildings being sold are residential or not for 60 day reporting and residential property rates of CGT purposes.  I am struggling to interpret TCGA Schedule 1a in respect of this scenario.  

I would be grateful for any thoughts.

Thank you

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By FactChecker
07th Jun 2024 16:38

"As they stand the buildings being sold are incapable of being lived in as they have no kitchen or bathroom facilities, not even water inside the buildings. Extensive building works will be needed by the new owners to create rooms, insulate, install services etc etc."
That doesn't sound like the land is 'residential property' ... but how is it rated on the Council records (residential or business)?

"The outbuildings have also never been used as part of the home, they have always had exclusive business use in the many years since she owned the property."
Not sure either statement there is relevant ... the plot/building could be residential without being "part of the (main) home", and 'since she owned the property' doesn't tell us what it was prior to then.

"She is now selling the outbuildings with planning permission to convert to residential."
This may be the most critical aspect. IANAL but the question (without an answer from me) is whether such planning permission in itself changes the plot's category?

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By Hazel Accounts
10th Jun 2024 10:14

I am also not a lawyer but reading TCGA (Schedule 1B) I think it would fall under the definition of residential as s3(1)(c) says it includes land "including a building that is to be constructed or adapted for use as a dwelling." which seems to be the intention here as land is sold with planning permission that increases the value.

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Replying to Hazel Accounts:
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By Mags21
10th Jun 2024 15:00

That was my initial thought but I have also found information that implies this is to catch properties being bought off plan -i.e. the seller is making the adaptations as part of the sale.

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By Mags21
10th Jun 2024 15:04

Thank you for your thoughts.

The buildings have never been part of a residential property as they are farm buildings but the whole farm house and substantial farmyard plus a couple of paddocks (but not acres and acres) was sold as one unit many years ago to my client.

Interesting point about the planning permission.

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By More unearned luck
10th Jun 2024 16:24

Sch 1A relates to, broadly, shares in property owning companies. Either you have omitted the fact that the property is owned by a company or you are looking in the wrong place. I assume that this is so.

If Sch 1B is applicable then the applicable period ends with the disposal. So the buyer's plan to convert the outbuildings into dwellings is not a relevant fact in deciding how much of the gain is taxable at the residential rates. It would be imprudent to let the buyer commence work before completion of the sale (an odd thing to do but it happened in a recently decided PRR case).

Para 2(1)(a) tells you how to apportion the gain if the use of the property varies over time and para 2(3) tells you how to apportion the gain if there has been mixed use.

As to any requirement to submit a CGT return and what gains to include on it see par 7(3A) of sch 2 FA 19.

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Replying to More unearned luck:
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By Mags21
25th Jun 2024 10:03

Thank you for your comments on this.

I am still struggling with the meaning of:-

(b)the interest in land subsisted for the benefit of land that consisted of or included a dwelling at any time falling on or after that date, or

The outbuilding originally existed as part of the farm which included the farmhouse which was originally her home (she sold this several years ago). Therefore during the applicable period her ownership of the outbuilding existed as a result of owning the dwelling, however it was not for the benefit of the dwelling as it was always in business use. This makes me conclude it's not a residential disposal but I don't find the legislation clear. Would you agree with my interpretation?

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By Justin Bryant
25th Jun 2024 12:59

The SDLT rules are equivalent and it sounds like residential property to me (merely renting the outbuildings does not of itself make them non-residential if they are otherwise residential - due to them being in the grounds of a dwelling).

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