Claim PPR/letting relief twice on one property

fabs35

Hi

I have a property that I have used as my main residence and then rented out.

I am now considering selling the property and looking to be as tax efficient as possible.

I am aware that I can use the PPR and lettings relief exemptions as well as deducting purchase and selling costs as well as any capital expenditure.

My question is - if I split the property into two seperate flats and dispose of the flats in different financial years, what impact will this have on being able to use these two exeptions:

1) Can I claim lettings relief (minimum of £40k) on both flats?
2) How is PPR calculated - I assume the purchase and sales values are calculated on a pro-rata basis?

Thanks for any thoughts.

jimmo

At the present time you own a single asset, a house which was your main residence when you lived there.

The usual method of selling flats is to grant a lease so if you convert the house into 2 flats to be sold separately you are likely to sub-divide the single asset into 3 identifiable parts, 2 leasehold properties and the freehold reversion.

However, initially at least, you will continue to own a single asset which was your main residence when you lived there.

When you sell flat 1 that will be a part disposal from your original asset and the original cost of the part disposed is determined by apportioning the original cost of the whole by reference to the selling price and the current market value of the part retained.

http://www.hmrc.gov.uk/manuals/cgmanual/CG70770.htm

http://www.hmrc.gov.uk/manuals/cgmanual/cg12731.htm

PRR and lettings relief will be available in the normal way but it could be very important that £40,000 is the maximum relief available, not the minimum.

Similarly when flat 2 is sold PRR and lettings relief will be available.

Something in the back of my mind says that the lettings relief maximum of £40,000 applies to the whole asset so that there would be a single maximum available against all disposals from the original asset but I have to say that the legislation appears to say that there is a separate maximum available for each disposal.

See (4) here

http://www.legislation.gov.uk/ukpga/1992/12/section/223/enacted

fabs35

Thank you Jimmo for the excellent reply!

It does seem as though Letting Relief could be applied to both part disposals...

Where a gain to which section 222 applies accrues to any individual and the dwelling-house in question or any part of it is or has at any time in his period of ownership been wholly or partly let by him as residential accommodation...

I guess it might be worth getting a definitive answer from a (costly) tax advisor.

Thanks again

JuneBow

I am just wondering how this PPR and lettings relief will interact with this. http://www.hmrc.gov.uk/manuals/cgmanual/cg65210.htm
Presumably the part of the profit attributed to the expenditure on the property would not qualify for LR or PPR, and it is just the remainder which is subject to PPR?