Capital gains - a property that was two, now knocked through and want to revert back

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    Capital gains - a property that was two, now knocked through and want to revert back

    I am buying a property that was originally two separate properties which the current owner has knocked through to one. The purchase will be for two separate titles under a single transaction but it is re-classified as a single dwelling for council tax. I do not currently own a property and it will be my primary residence.

    Upon purchase I will obtain planning to revert back to the original two. I plan to sell one and live in the other.

    How will this work for capital gains primary residence relief as the property as a whole will have been my primary residence?

    I have read through HMRC guidance and haven’t come across any clear guidance. Any help is greatly appreciated.

    Issy

    #2
    Why will "the property as a whole will have been my primary residence" if you move in and then split it?

    It might have been your PPR for about 1 day. PPR works by time, it is not established and then somehow kept.

    I think you will need to get formal surveyor's valuation of the "other" half after splitting it and use that as the baseline. I don't think the cost of creating the split will count as a capital expense as this will have been on your PPR.

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      #3
      I say this as I currently don't own a property so it will be my primary residence until split, this will take approx 2 months to complete due to planning permission.

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        #4
        Well you will have two months of PPR and then you will start off with a new value assigned value on the new half from that point on. I'd strongly suggest you get formal valuation which if it is a half split will have to be around half the value of the whole as an acquisition cost. I suppose you could take

        (purchaseofwholecost + splittingcost)/2 as the baseline cost of the new half and HMRC probably wouldn't argue. If you immediately sell at a large profit (vs this calculation) HMRC would certainly want to know about it. I doubt they will regard it as selling your PPR but they might.... interesting.

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          #5
          If you sell it as soon as you split it will there be CGT to pay at all? Given that there is an approx £12,500 allowance each year how much value are you hoping to add? And if you sell quickly might it be treated as a flip and be taxed as income?

          As this is an unusual situation you may need to take expert (paid) tax advice other than relying on us, however helpful we try to be.

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            #6
            You need proper tax advice - most people considering this kind of project would do it using a company structure, because for a company the gain in the value of an asset is income, not gain, so the tax position is very different.
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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              #7
              Your acquisition cost for each unit could be 50% purchase cost + 50% of the site work cost to split property.

              The capital gain is calculated from the sale proceeds minus the acquisition cost .

              If you sell after a short time, the gain may be taxed as income.

              If you sell after one year, you should be able to claim the £12,300 personal allowance for capital gains

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