CG65271 - Private residence relief: realising gain: conversion into flats - example 2
In July 2015 an individual acquired a house for £100,000. »Ê¹ÚÌåÓýapp house was used as his only or main residence. In September 2020 he incurred expenditure of £25,000 to convert the house into two flats. He moved into one of the flats when the conversion was completed, and put the other flat up for sale. »Ê¹ÚÌåÓýapp flat was sold leasehold in January 2021 for £135,000.
»Ê¹ÚÌåÓýapp Valuation Office Agency advises that the value of the flat retained and the freehold reversion in January 2021 was £165,000 and that the unconverted house would have been worth £225,000 in January 2021.
»Ê¹ÚÌåÓýapp part of the gain which is excluded from relief because of the application of Section 224(3) is computed as follows.
| Ìý | £ |
|---|---|
| Value of flats at January 2021 | 300,000 |
| less | Ìý |
| unconverted value at January 2021 | 225,000 |
| Ìý | 75,000 |
| less | Ìý |
| conversion costs | 25,000 |
| Ìý | 50,000 |
Gain apportioned to flat sold
£135,000 x (£50,000/ £300,000) = £22,500
This is less than the total gain arising from the sale of the flat, so the chargeable gain is £22,500 before the annual exempt amount.
Without the restriction under Section 224(3) the gain on the flat sold would have been fully relieved. »Ê¹ÚÌåÓýapp period of residence ended in September 2020 but the subsequent period falls within the final period of exemption explained at CG64985+.
When the flat retained as the only or main residence is finally sold a further computation will be required as part of any gain arising on that flat may also be attributable to the conversion.