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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4095
Experience:  FCCA FCMA CGMA ACIS
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In 1987 we bought a business property(2 terraced houses) for

Customer Question

in 1987 we bought a business property(2 terraced houses) for £75,000 using the property as a dance centre and living accommodation for my wife and family.
We moved out of the living accommodation 3 years ago but continued to use part as a dance centre.
We are in the process of signing for the sale of the whole property for £350,000.
we need help and guidance regarding Capital gains tax, private residence relief and Entrepreneur relief
regards
Mr and Mrs Murphy
Submitted: 11 months ago.
Category: Tax
Expert:  bigduckontax replied 11 months ago.

Hello Mr and Mrs Murphy, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

If you are finally going out of business than Entrepreneurs' Relief (ER) will limit the rate of CGT to a flat rate 10%, but only for part of the property. You are going to need a local, trusted professional, probably a Chartered Surveyor, to assist you in this matter.

The valuation of the property must be split, the commercial from the residential. For the residential you will be entitled to Private Residence Relief (PRR) for your period of occupation whilst you lived there. PRR relieves Capital Gains Tax (CGT) at 100%. For the last 18 months of ownership PRR is extended. Work out your total ownership time in months, say 348 months. Unoccupied time is 18 months so 18 / 348 = say a tad over 5% of the gain on the flat will be exposed to CGT at 18% or 28% or a combination of the two rates depending on the individuals' income including the gain in the tax year of sale. That disposes of the residential element.

For the commercial part ER applies limits CGT to 10% as opposed to the normal rates of CGT at 10% or 20% depending on the individuals' income including the gain in the tax year of sale.

Remember each of you has a non cumulative Annual Exempt Amount (AEA) of 11.1K to offset any gain. I cannot compute the quantum of tax exactly as I do not know the valuation split (see above), but a worst case scenario would be a tax bill of some 13K each. It will not be a much as that with your PRR entitlement. My answer will be slightly different if you let the dwelling house after your vacation thereof.

I do hope that I have helped shed some light on your rather complex situation.