selling public house

by **gpsangler** on Wed Dec 17, 2008 7:48 pm

Hi everyone,

Have a slight disagreement with my financial advisors over the following:

August 1992: bought public house for £200,000
November 2007: sold same for £570,000

Have elected that 40% of property was Principal Private Residence. (section 222 TCGA 1992)

Now we get to the difference of opinion -

They say that non-business taper relief should be applied to 40% of the gain, and business taper relief should be applied to 60% of the gain; ie 40% and 75% relief respectively.

We say that it's only logical, since the remainder after PPRR is solely business, that taper relief should be applied at the
full 75%.

Your views would be very welcome...

Cheers Graeme

by **Peter D** on Wed Dec 17, 2008 8:00 pm

If you genuinely lived in 40% of the property as your principle Private Residence then that proportion of the gain is exempt from CGT. Read IR283 on the HMRC web site. Regards Peter

by **gpsangler** on Wed Dec 17, 2008 8:10 pm

Yes we certainly did mate; in fact I think it should be nearer 50% occupancy than 40% but that's a different
argument!

They say (and the purpose of this post is NOT to be vindictive towards our accountants of 12+ years)
that their experts have stated that it's illogical, strange and even bizzare, but true.

by **Peter D** on Wed Dec 17, 2008 8:20 pm

If you have only declared 60% of the repair and maintenance of the property against the business, rates, insurance etc. etc. then it was you PPR and is exempt. Regards Peter

by **gpsangler** on Thu Dec 18, 2008 11:45 am

Thanks Peter D for your valuable help and advice.

by TN on Thu Dec 18, 2008 5:26 pm

I'm not sure that Peter has fully answered your question. I agree with your accountant's analysis, albeit that it does provide an odd result.

Say you've realised a gain of £300k (after indexation, costs etc - this would need to worked out exactly). 40% is being used as your PPR, so the gain attributable to this is £120k. S222(10) TCGA provides that the proceeds should be apportioned between the PPR part and the non-PPR part on a just and reasonably basis (s224(2)).

The £120k PPR part is exempt from tax, as Peter has pointed out.

I believe it is the balance of £180k which your accountant says should be split again - 40% NBA and 60% BA. Although this feels wrong, I believe it is technically correct. The apportionment in S222(10) only applies for the purposes of s223 to s226. It doesn't apply for (what was) Sch A1 which deals with taper relief.

Para 9 of Sch A1 says that where you have an asset used partly for business and partly not you have to attribute part to BATR and part to NBATR.

So your calculation is:

Gross gain (say) 300k
Less: PPR relief (120k)
Gain after PPR 180k
BATR (£180k x 60% x 75%) (81k)
NBATR (£180k x 40% x 40%) (29k)
Gain after taper 70k

You then get your annual exemption etc, and tax the balance at 40%.

It is a bit of an anomoly, but I seem to recall seeing something similar some time back. There is an example of the taper calculation at CG17958.

I think the only way around this is to argue that the pub and the residential bit are two separate assets, but unless the resi bit is quite separate, and the documentation indicates two separate assets were sold (e.g. two contracts etc) then I suspect this isn't an option.

Others may have a different view to mine, or be able to suggest an alternative solution.

by **gpsangler** on Fri Dec 19, 2008 12:13 pm

Thanks to you, TN, for your in-depth response.
That's basically what the accountants are saying!
So in a nutshell, don't purchase a business with a private residence incorporated in/with it....

If we had bought a sole domestic dwelling with the £200,000 it would have been worth
about £720,000, CGT free. So not only have we made a "paper" loss, HM government tax us
for the privilige! It should be called CLT: Capital Loss Tax.

End of soapbox - thanks again.

by **gpsangler** on Fri Dec 19, 2008 2:06 pm

However, further research unearths this:

CG64674 - Private residence relief: part of house used for business: apportionment

on HMRC site. Add a bit of taper relief from 1998 to 2007 to the business element
and I think we're there!

Funnily enough, the percentages in the example are exactly how we have apportioned it,
and it's a public house!

What do you guys think?

Cheers....

by TN on Fri Dec 19, 2008 3:09 pm

In my opinion this doesn't help. The example is just the first part of the comp that I ran through before. They only go as far as the chargeable gain before taper. If they carried it on, I suspect that they would need to apportion the £43,920 or revised £108,862 between NBA and BA.

The two sets of rules for PPR and Taper are different, even though this results in an odd outcome. It is the interaction of the two which is the problem.

by **maths** on Fri Dec 19, 2008 7:14 pm

I am afraid that I cannot agree with TN's interpretation.

Where an asset is used throughout the period of ownership partly qualifying as a business asset for TR purposes and partly as a non-business asset an apportionment is, of course , required.

For TR purposes such an apportionment may be 40% non-business and 60% business.

Thus, 60% of any capital gain will be reduced by business asset TR (eg 75%).

The the balancing 40% of the gain is reduced in principle by non-business TR (eg 40%).

However, in the present case it is argued that the 40% qualifies for PPR relief, and hence will be exempt.

It would make a nonsense of the legislation to split 60/40 say for TR and then revisit the % for PPR relief.