complicated capital gains tax question

jimmypick

Hi, 
My mum bought a house for £120,000 in 2000. It was effectively two houses but with a connecting internal doorway. After a 6-12 months, she blocked off the connecting doorway and rented out the smaller house (3 beds) and lived in the bigger one (4 beds). 
She sold the one she lived in roughly ten years ago. 
She is now considering selling the rental property. It has been valued at £180k. If she get this, what CGT would she have to pay? How would someone come up with a purchase figure for that house from the year 2000 when she paid one amount for the two houses? 
Is there a small relief for her not renting it for the first 6-12 months, with her living across both?
Many thanks in advance! 

jimmo

For CGT purposes you seem to be saying that your mum purchased a dwelling house and subsequently divided that into 2 dwelling houses. I will call them house 1 and house 2.

If that is the case then when she sold house 1, the house she lived in throughout, that was a part disposal from the original asset.

The original purchase cost and the cost of conversion needed to be apportioned between house 1 and house 2 in the ratio of the sale price of house 1 and the open market value of house 2 at the date of sale of house 1.

In circumstances such as your mum's it is pretty common for the necessary calculations not to have been done on the sale of house 1 because there was no CGT liability. I am afraid she will have no alternative but to do this now.

The "part disposal formula" is detailed here.

 Taxation of Chargeable Gains Act 1992 (legislation.gov.uk)

 

Once the apportioned cost of house 2 is determined the gain on house 2 can be calculated. Assuming she lived in the whole original house she may be entitled to Private Residence Relief in respect of the period she occupied the whole house plus the final 9 months of ownership.

HS283 Private Residence Relief (2021) - GOV.UK (www.gov.uk)

 

A word of caution:  A simple doorway and subsequent blocking up of that doorway may not be sufficient to establish that what was originally purchased was a single dwelling house subsequently divided into 2 dwelling houses. The Valuation Office Agency is responsible for such matters for both CGT and Council Tax so looking at what Council Tax was payable could be a good guide in looking at whether the original purchase was one dwelling house or 2.