Rollover relief from office property?

by Readers Question

8:46 AM, 23rd February 2016
About 3 years ago

Rollover relief from office property?

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Rollover relief from office property?

I was interested in the article by Mark Alexander 01/08/2012 re rollover relief.
Due to retirement I have recently sold an office property that I occupied for my own business purposes on which CGT is payable. roll

Does rollover relief apply if I buy a residential buy to let?

Thank you

Clive



Comments

Neil Patterson

8:47 AM, 23rd February 2016
About 3 years ago

Mark and myself are not 100% sure erring on the No?

Sharon Harrison

10:09 AM, 23rd February 2016
About 3 years ago

No, rollover relief doesn't apply to residential buy to lets.

matchmade

10:13 AM, 23rd February 2016
About 3 years ago

I'd talk with an accountant, but I suspect rollover relief for CGT isn't available when transferring capital from a commercial property to a residential one. Residential rental properties owned in an individual's name have a weird status with HMRC in which they are treated as personal "investments", not commercial businesses, even if the person owns dozens of houses and is a full-time landlord, and even though most conventional costs (at least until Clause 24 was invented) are deductible from one's tax liabilities. From what I have read, it appears full-time landlords cannot technically be self-employed, pay Class 2 NICs and so on, as they are not conducting a "trade". They are instead regarded by HMRC as merely managing their investments, not "working" in HMRC's understanding of the term.

It sounds like you were self-employed and owned the office for business purposes in your personal name rather than through a limited company. Consequently when you sell the office, you will be realising a personal capital gain on a business asset, but when you buy a rental property, you will be acquiring a personal *investment* asset, and rollover relief will not be available. The only way round this would be if you could demonstrate that the rental property were genuinely required for your continuing trading activities. However if you are now "retired", then you are presumably no longer trading. See https://www.gov.uk/business-asset-rollover-relief.

Raphael Coman, FCCA, CTA

13:37 PM, 24th February 2016
About 3 years ago

The office property used for you business is eligible for the relief. The residential property is not.

Rob Spriggs

18:56 PM, 24th February 2016
About 3 years ago

Reply to the comment left by "Raphael Coman" at "24/02/2016 - 13:37":

I've recently sold a BTL residential property and I am considering purchasing a FHL property for personal reasons (work/life balance, etc).
A benefit of this transaction means I am entitled to Holdover Relief (simular to Rollover relief) as long as the criteria for the FHL are met.
Advice should be sort from your accountant before embarking on such a strategy. You would be liable for entrepreneurs Relief on the sale of the FHL.

Raphael Coman, FCCA, CTA

9:49 AM, 25th February 2016
About 3 years ago

Dear Rob Spriggs,

You cannot claim hold-over relief on residential properties.

Gift relief (or hold-over relief) applies to business assets, or unlisted shares in a trading company.

Rob Spriggs

10:25 AM, 25th February 2016
About 3 years ago

Reply to the comment left by "Raphael Coman, FCCA, CTA" at "25/02/2016 - 09:49":

Dear Raphael,

I have sort advice on this matter through a Specialist Tax Dept who have confirmed that you should qualify CGT Holdover Relief (you defer paying the CGT) if the gain made on your sold buy to let, is being invested into a Holiday Let business which is available to the general public for 140 days each tax year and must be let for at least 70 days. On the sale of the Holiday Let business you should qualify for Entrepreneur’s Relief which is 10% of all net gains rather than 28%!

The caveat is that the Holiday Let businesses must be ran correctly and signed off your via your self assessment!

Regards,

Raphael Coman, FCCA, CTA

12:03 PM, 25th February 2016
About 3 years ago

Roll over relief is specified in section 152 of the TCGA 1992:
http://www.legislation.gov.uk/ukpga/1992/12/section/152/enacted
"the old assets and new assets are within the classes of assets listed in section 155"
Section 155 is here:
"Head A has effect subject to section 156."
http://www.legislation.gov.uk/ukpga/1992/12/section/155/enacted
and finally section 156 states:
"Head A shall not apply where the trade is a trade—
(a)of dealing in or developing land, or"
I agree that Furnished Holiday Letting is a trade for the purposes of Roll-over relief.

However, residential property is not a trade for the purpose of roll over relief.

Further detail on the HMRC interpretation can be read here:
http://www.hmrc.gov.uk/manuals/cgmanual/cg60990.htm

However a typical buy to let activity is investment in nature and not trading for the purposes of roll over relief.

Raphael Coman, FCCA, CTA

12:19 PM, 25th February 2016
About 3 years ago

As a footnote to the above, there was a recent case on 15 May 2013, The "Ramsay" case which overturned the restriction of roll-over relief in relation to a property letting business. However, in this case a husband and wife were actively involved in the management of a block of flats, which involved 20 hours a week managing the flats, collecting rents, carrying out repairs and so forth.

The specialist that you have used may be prepared to rely on this case to claim roll over relief on a single buy to let property. However, I doubt that the case can be interpreted that widely. Until further clarification arises from Court cases or new legislation, I would only stand by a roll-over relief decision where the business is at least as actively managed as it was in the case of Ramsay. In practice this would apply where a portfolio of at least similar size is being actively managed, and little or no reliance is placed on the services of a letting agent.


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