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TonyTax
TonyTax, Tax Consultant
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In 2004 I purchased a Farmhouse (my personal residence) and

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Hi,
In 2004 I purchased a Farmhouse (my personal residence) and 2 derelict out buildings. They were purchased on one curtilage.
The outbuildings were split and converted with full residential permission. As we were running the buildings as holiday lets, 'repairs' during conversion were (at that time) deductible against my other earnings under the sole trader rules, and therefore both properties are currently registered in my sole name.
It is now time to sell the properties.
One property is mortgage free, and the other has a buy to let mortgage secured against it. Although early days in the marketing of these buildings it seems that the smaller (mortgage free) property is attracting most interest and is likely to sell first.
I clearly would like to pay only the amount of capital gains tax (if any) that is due.
My plan is to transfer 50% of the mortgage free property to my wife.
Assuming that sells first, I will delay the sale of the remaining property until the next tax year.
The proceeds of the first sale, will be enough to clear the mortgage on the second sale, allowing me to transfer 50% of that property to my wife without worrying about stamp duty.
I know the complete cost of the purchase of my main residence, and the 2 outbuildings.
I also know the complete cost of the capital works needed to convert both buildings.
What I don't know is how to apportion the cost of the original purchase between the 3 buildings.
Advice on this point would be most welcome, along with comments regarding the transfer of the properties to a 50/50 split with my wife.
Any assistance would be most welcome!
Regards
Steve
Submitted: 8 months ago.
Category: Tax
Expert:  TonyTax replied 8 months ago.

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

Expert:  TonyTax replied 8 months ago.

Given that the outbuildings were derelict when you bought the property, I'm assuming for an all-inclusive price, and that planning permission didn't exist at the time of purchase, I would have thought that only the land on which they sat had any value and that would have been reflected in the original purchase price. If I were you, I'd consult a land valuer for guidance as to the apportionment for two reasons:

1 A good land valuer will have had previous experience of the division of the original purchase price between the farmhouse and any part of the land or outbuildings used for business purposes of some sort or sold off for development. He or she should have an idea of land values at the time of the original purchase.

2 HMRC will almost certainly refer your calculations to the District Valuer who will make the same assessment of how the original purchase price should be split which may be different from yours. You would then need an expert (a land valuer) to argue your case.

Running a holiday letting business is seen as a "proper" business whereas letting property generally is not. Therefore, if you sell a furnished holiday let, you should be entitled to entrepreneurs' relief which will limit any CGT charge to 10% as opposed to the regular rates of capital gains tax applied to non-business assets or business assets where the qualifying criteria for ER aren't met by the business and/or its owner. As you appear to have been trading as a sole trader to date, adding your wife to the deeds of one of the properties will effectively turn your business into a partnership. Transfers of assets between a married couple who are living together are treated as having occurred on a no gain, no loss basis so she would take half your cost as hers. In order for your wife to qualify for ER on her share of any gain she will need to have been part of the business for at least a year before the sale of the business asset, the property and any goodwill which may exist. Take a look at HS283 here for information on ER.

I hope this helps but let me know if you have any further questions.

Customer: replied 8 months ago.
Hi Tony,No.......... both buildings had planning permission for the conversion prior to our purchase. So, although they were not split, they were worth more that the land value........ so, taking your advice, I need to find somebody who can value barns for conversion from 2004 with sufficient skills to convince the tax man?On your ER comment, If I sell a furnished holiday let, as a residence, rather than a continuation of the holiday business, does relief still apply?TksSteve
Expert:  TonyTax replied 8 months ago.

On your first paragraph, I agree.

If you sell the holiday let as a normal residence, you should still qualify for ER as you are effectively selling part of your business. What the new owner does with it is irrelevant. I'd try to run it as an FHL for as long as possible up to the sale. Look here for the FHL rules. You will then have one furnished holiday let left and the business will end naturally when you sell that one.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15882
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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