selling our guest house and main home. what capital gains will i pay?

Mandyboo

We are selling our guest house and were wondering how to calculate the amount of capital gain we will need to pay, if any?
The property is our main home and has been for the past 11 years?
Can anyone help me out..any advise would be great

chrismac1

If it is your residence, you get Principal Private Residence Relief. If there has been no period when you've ownit it but not lived there then there is no CGT.

property.advert

My guess, but it is just a guess, will relate in part to the percentage of the property which you have previously declared is business and deducted expenses for.

jimmo

The problem with a guesthouse is determining what proportion of the house (if any) has been exclusively used for business purposes.
Going back to the late 60s, I and many other trainee taxmen went on a series of 1 week training courses. In some of the places I stayed you were more akin to a lodger, having your own bedroom but sharing the rest of the house with the family and having meals with the family.
In others the house had up to 10 guest bedrooms, a number of guest bathrooms and a guest lounge / dining room. It was fairly obvious that the landlady had, at least, her own bedroom, bathroom and living room in a part of the house not accessible to the guests.
The Capital Gains consequences for those 2 examples would be very different.
Give us a description of your guesthouse and we can get started but there will probably be lots more questions before we can start answering your question.

Mandyboo

Thanks for your replies so far...
We have always lived in the guest house as our main residence.
We have a private part in the house which comprises a bedroom, bathroom, lounge and the kitchen (only on ein the property).
We have 9 letting rooms, a guest lounge, a dining room.

I hope this info helps you a little!
Any help is much appreciated as I am in ill health and need all the profit possible in order to move on.

Pennywise

Mandyboo wrote: »

Thanks for your replies so far...
We have always lived in the guest house as our main residence.
We have a private part in the house which comprises a bedroom, bathroom, lounge and the kitchen (only on ein the property).
We have 9 letting rooms, a guest lounge, a dining room.

I hope this info helps you a little!
Any help is much appreciated as I am in ill health and need all the profit possible in order to move on.

Then you'll be liable to CGT on the increase in value of the proportion consisting of those 9 beds, lounge and dining room if they've been used exclusively for the purpose of "trade" during ownership. If, eg, one of the bedrooms had been used for yourselves or child or whatever, then that changes the position for that room, or if you moved out of your "flat" in the winter months and used the lounge/dining room and some bedrooms yourselves, then again it changes.

CGT computations on these kind of properties are notoriously complicated and often challenged by tax inspectors. Your accountant is probably the best person to advise you as they'll know the history and what claims have previously been made as to what proportion of running costs have been claimed against room income for tax purposes.

jimmo

I agree with Pennywise.
As a taxman, the first thing I would want to look at would be whether the owners' rooms constitute a dwelling house in its own right. As there is only one kitchen, my guess on here is that the whole building is a single dwelling house but, as a matter of course, I would seek the District Valuer's advice.
The correct method of computation is to determine the Capital Gain for the whole property and then apportion that between the respective parts. Again, from a taxman's point of view that is a job for the District Valuer.
http://www.hmrc.gov.uk/manuals/cgmanual/CG64670.htm
http://www.hmrc.gov.uk/manuals/cgmanual/cg64674.htm
Also if you have owned the guesthouse since before 31/3/1982 your computation should be based on the 31/3/1982 value and not the original acquisition value, another job for the District Valuer.
Quite frankly, this is no place for amateurs. I would suggest you certainly need an accountant who is familiar with Capital Gains (like tax inspectors, not all of them are). You probably need a professional valuer as well but it would probably be better to let your accountant look after that so that they talk to each other and, hopefully, get it right first time.

Mandyboo

Thank you so much for all your advise. I know its a difficult area and appreciate the fact the you have explained in the simplest terms for me lol.
If we do manage to sell I will let everyone know what happens just incase it helps others.

Tills the next time. Thank you

iank_2

Hi ,
I know the last posts were a while a go but I thought it worth a bash.
We purchased a guest house in 1984 for £ 65000 that was the value of the building and land as the books were non existant.
In 1984 we spent a further 20000 building an adjoining house for our own use but using the kitchen , store room and laundry for guest house use .
i think that about 85000 is now written in our books.
This is our only home and the value of the property is probably about 900000 to a million.
There was mention on the forum of Principle Private Residence Relief that may help us .
It does seem unfair that we should have to pay capital gains on difference from the price we paid nearly 30 years ago and todays value.
I run the guest house with my wife as a partnership and we have 3 children.
Any advise welcome .
Ian

jimmo

It sounds as if you own, and are intending to sell, a single asset which consists of a plot of land upon which there are 2 distinct, albeit adjoining, buildings. One of those buildings is your home (a dwelling house). The other is the guesthouse (business premises).

Assuming the kitchen, storeroom and laundry are in the building that is your home, and that they were used for both business and private purposes they will not affect the Capital Gains computation and you can therefore expect to find that your dwelling house will qualify for Private Residence Relief in full.

The guesthouse will not qualify for Private Residence Relief at all. However it will qualify for Entrepreneur’s Relief which means that the tax rate you will be charged will be 10%.

That is almost certainly an oversimplified interpretation of what you have said and it will become far more challenging if, for example, you actually lived in the guesthouse element whilst the dwelling house was being built or any one of the kitchen, storeroom and laundry were used exclusively for business purposes.

I would seriously suggest that if you are anticipating selling for something approaching £1m you really should have an accountant on your side and the sooner the better. Proper tax planning needs to be done before the event. After the event you will not be able to change history.