I am aware of the rules around PPR relief and size of the garden etc. this particular house will definitely not fully qualify for PPR relief as it has a garden/land attached which is circa 25 acres. Some of which is used to hold weddings
My Q is twofold:
1.) I assume the overall gain is split between the house (and what would be deemed to be the garden <0.5 hectares) & the remaining land which has been used for business purposes. How is this split calculated, is it as simple as splitting it based on size or is there something more creative possible?
2.) Could ER be claimed on the land used for weddings etc. as an associated disposal as the business will cease at the same time
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Replies (5)
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The split will depend on the circumstances, you probably need a valuer for starters to work it out. I also wonder if the land was bought in this configuration, or if bits have been added or sliced off during ownership.
This is really not something to be doing in Jan.
Tell the client its a £100 fine, and get some proper help. They are presumably multi-millionaires so wont miss the £100.
As for ER, well does it meet the conditions or not? Its not clear if they have a business or are just renting a bit of land out now any gain. Its all about the facts.
As ire says, how the property was acquired is a key point. It could determine whether there is one asset or several. This is discussed at a low level at CG71800 (and maybe in more depth elsewhere, if you have time to search).
Let's assume for now there was one asset. That asset may have been used as a private residence and in a business, so prima facie the OMR exemption and ER may both apply. If there's only one asset, you need to apportion ER on that basis. That can give an outcome that does not seem either just or reasonable, but it's the apportionment that has to meet that test (s169P(2)), not the outcome.
Some good news there for you; some bad.
Don't forget that the permitted area may be more than 0.5 hectare depending on the facts.
As whiteman van quite rightly states the 0.5 hectarce rule can be varied. For instance if the drive to the house ran through the grounds it would be necessary to enjoy the the house.
As above I suggest you client puts in a estimated return as I feel it could take some months to decide what is part of the PPR and what is not. You need a specialist valuer (one who has dealt with these type of questions before on a simalar size plot) to consider the plot and the law. Then if a business is being run from the non-ppr part of the land you will need to consider when Entrpreneurs relief applies and whether the land is to be treated as a business premies or part of the house. A lot to do!
I'd agree with all on their comments thus far. You don't provide any additional detail but like others, I'm assuming that you've considered the initial facts and concluded that a taxable gain may well arise due to the size and nature of the plot/property in question.
Your client needs to get in touch with a good valuer who has experience of dealing with what sounds like a large estate type home with extensive grounds and gardens. They need to review the overall footprint of the land to determine the underlying values of each part of the house/garden/grounds - for example, if there is a long drive way to the house within the garden and there is a grass border either side, these grassy areas are probably worth less than say a large lawned area. Similarly, if there are large areas that have limited or no vehicular access, this could also devalue them compared to, say, a lawn that was edged by a simple fence line that had a road running by it. They should also consider whether any of the trees on the land have protection orders preventing them from being felled, as this could diminish any development value placed on a swathe of turf.
This sort of report should then allow the cost of the property to be apportioned between the relevant areas (whether inside or outside the permitted area), as the starting point for any CGT calculations.
If HMRC opens an enquiry into the PPR claim, and the amounts are considerable, they will probably involve the Valuation Office, to make a decision on the value of the non PPR element. In my experience this takes a long time and they may simply come back with an estimated value for the entirety and just apportion it on an area basis as they see fit. This is unlikely to take into account any of the above, but these factors can be pointed out to HMRC/VO as required, and negotiations can commence.
The VO relies on the Lady Rook tax case in these sort of cases as their backup for disallowing a PPR claim for big garden. You'll need to read the case or a summary of it, as you'll need to find as many elements of it as possible you can refute in your case, otherwise HMRC will push the VO allocation of apportioned area/cost.
Oh, and I'd suggest that your client takes out some fee insurance if they haven't already, as we know HMRC love a juicy CGT job...
