UK Capital Gains Tax question

[namesweb]

Hi guys,

I'm hoping someone might be able to help:
We own a family home, which was purchased in 1984 for £35k, which if we decide to sell in 2-3 years time, we estimate will be worth approx. £475k.

Currently, we've raised some equity on a let to buy basis to purchase a new main residence, where we will live full time. The old property will be let out to tenants.

For nearly 1.5 years I've used the home as the address for a limited company.

If I understand correctly, am I only liable for capital gains tax arising from the period at which the property began being used for the business?

As the property wasn't officially lent to the business, nor is the business being sold is it right that entrepreneurs relief won't apply? Is there anything we can do to negate this?

Finally, if we do decide to sell it in 1.5 years time, after having tenants in the property for 1.5 years, and the business use of 1.5 years, would I only liable for 3 years worth of the 34 years we've owned it? i.e 8.8% (3/34) of the profit?
So our gain at £475k would be £41.8k (8.8%), of which (given we're lower rate taxpayers) we'd have to pay 18% as CGT? So therefore a tax liability of £7.5k?

If that's not the case is there an overlap period during which we can sell the property but not have CGT liability (where for eg we may not have been able to find a buyer or a chain that fell through)?

Many thanks

 

[Becky]

Welcome to the forum

Private Residence Relief (PRR) is what you need to take a look at. Here's a very useful document from HMRC which explains it well:

https://www.gov.uk/government/publi...ment-helpsheet/hs283-private-residence-relief

Yes, you are right that you need to apportion the gain based on how the property was used. Count up the total number of months that the property was owned for. Then, of those months, look at which months the property was your main residence. Given the fact that the property has been your main residence at some point, the last 18 months are treated as if the property was your main residence, regardless of how it was actually used.

You will also need to count up the months where there was business use, and the months where the property was let out (excluding the last 18 months). PRR will be restricted if part of the property was used exclusively for business use, and you just need to make a reasonable apportionment for that period (eg if the property has 10 rooms and one of them was used exclusively for business purposes, then of the gain relating to that period 90% will be covered by PRR and 10% will be chargeable). Relief for the period when the property was let will be slightly more complex - refer to the document, especially Example 9.

Let me know if you have any queries once you have read the document.

 

[namesweb]

Hi Becky,

Thank you very much for that reply - really helpful.

So I'm comfortable with most of what the document you've linked me to refers to, and also I'm comfortable with what you say wrt to exclusive use for business purposes, however no part of the house was ever used exclusively for business.

Part of the business (i.e. the administration side) used my PC (which was also used for non business purposes), in my bedroom (which also functioned as my proper bedroom), and second part of the business operated out of the family kitchen, which was predominantly used as a normal residential kitchen, except for 1 or 2 days a week where it was used for my business purposes.

Hence, no part of the house was ever exclusively used for the business... However, how would I go about explaining that? Or do I not need to?

Many thanks for your time & help.

 

[Becky]

The restriction only applies if part of the residence is used exclusively for business purposes, so if that is not the case then full relief is available for that period of time

http://www.hmrc.gov.uk/manuals/cgmanual/cg64663.htm