Capital Gains Tax Question – PPR Title Splitting

Hello

I have a capital gains tax question.

Someone owns a home and they have lived in it the whole time. They have built a large extension which, with very little work, can be made into a separate dwelling. If they were to get the title split and a separate supply of electricity and water, would PPR relief apply to both properties if sold right away, or only one of the properties?

If PPR relief does not apply, then if selling the new dwelling, what figure would be used for the ‘purchase price’ of the property?

Thanks.

Joshua

Response from the Property118 Tax Team

There are two CGT trigger points to consider in this scenario.

The first CGT trigger point occurs when the title is split. There will be no CGT due because the property was a PPR until this point. Thereafter, a maximum of one of the properties can continue to be a PPR for CGT relief purposes.

The second CGT trigger point occurs when one or both of the properties are sold. If this happens immediately after the title split there will have been no capital appreciation, so there will be no CGT due.

However, now let’s look at a slightly different scenario.

Let’s assume that when the titles are split each property is worth say £300,000.  One continues to be lived in and the other is let. Then, at some point in the future, both properties are sold for say £350,000. In this scenario there will be no CGT payable on the property which remained as a PPR and the taxable capital gain on the second property will be £50,000 less any allowances.

We hope that helps.

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