CGT on part disposal - The Book-keepers Forum (UK)

Mycroft · Member

CGT on part disposal

Cheshire · Master Book-keeper

Mycroft wrote:
Hi all

Can anyone confirm my understanding on part disposals please?
My client purchased a property consisting of two shops and two flats, he moved into one flat which he subsequently sold and then the other flat which he also sold, leaving just the two shops and freehold of the entire property. The sales of both flats qualified for the PPR relief.
Now, he has sold the two shops and freehold. I therefore presumably need to apportion a part of the original cost of the property to determine how much related to the two shops. If I have interpreted the rules correctly I can do this buy:
Cost of all property x (Proceeds from sale of 2 shops / Proceeds from sale of 2 shops and 2 flats)
Would this be correct? No.
Any help would be greatly appreciated.
With thanks
Mycroft

Artois · Guru

Not an area that I have had any experience of dealing in and certainly not one I would ever consider offering paid for advice due to this lack, so merely observations

Should a valuation of the shops not have taken place after the sale of the flats which would have given you the value of the property remaining, which would in turn enable you to work out the original costs of the flats and the shops?

Was PPR worked out correctly if the client owned both flats at the same time?

Cheshire · Master Book-keeper

Calc wrong, as I said. Timing (if there should indeed be apportionment) wrong,PPR relief looks wrong.

Fundamental issue, why is it even one classed as one property? So is it really a part disposal, based on the current scant facts, who knows.

Mycroft · Member

Hi Both

Thank you for your replies and apologies for my lack of clarification.

Hopefully this helps:

Client purchased the property as a whole (2 flats/2 shops). All were individually rented out. When one flat was vacated, my client sold his home and moved into flat 1. When tenant in flat 2 vacated client sold flat 1 and moved into flat 2. Later, he sold flat 2 and purchased another property. He was living in both flats for several years, and continued to rent the shops. His understanding was that as he he sold each flat (in turn his then home) this was exempt from CGT due to PRR (obviouslly excluding a proportion for the time it was rented) and hence he gave no thought to having the remaining property valued at that time.

Hope this is clearer.

Mycroft

Artois · Guru

Mycroft wrote:
Client purchased the property as a whole (2 flats/2 shops). All were individually rented out. When one flat was vacated, my client sold his home and moved into flat 1. When tenant in flat 2 vacated client sold flat 1 and moved into flat 2. Later, he sold flat 2 and purchased another property. He was living in both flats for several years, and continued to rent the shops. His understanding was that as he he sold each flat (in turn his then home) this was exempt from CGT due to PRR (obviouslly excluding a proportion for the time it was rented) and hence he gave no thought to having the remaining property valued at that time.
Hope this is clearer.

Hi Mycroft,

No, I am still confused.

How could your client work out the gain/loss on each flat if they did not know the purchase price of each, I know you say it was exempt because of PPR but if the flats were rented for several years then surely part of the gain would be liable to CGT even if covered by the allowance, but with out a purchase price how can the PPR be calculated

Cheshire · Master Book-keeper

One of my points earlier was about whether this indeed is even subject to a part disposal or not.

You say he 'bought the property as a whole' but did he but the property and then convert it to 2 flats and 2 shops?

I suspect that is not the case, therefore the rest of it is mute, although in truth Ive not waded through the act for the exact/appropriate definitions.

What do the sale particulars show? What was the date of the sale? What is on the land registry?

What does it state in the CGT act as to whether or not you can class this as one whole?

If Im wrong, quite possible, then I agree with Doug in that the calculations so far are probably totally suspect. If your client wants to persist down that route he should have known at the sale of flat 1 the valuation of the remainder, as Doug states, so I would suggest you go via a CG34 Post Transaction Valuation Check to HMRC at the very least (as well as checking your PII cover for advice you wish to give).

Out of interest - where did you get the calc from?

The one for part disposals is section 42 of the act.

edited to sort a typo and to clarify a point.

-- Edited by Cheshire on Monday 15th of July 2019 07:20:06 PM