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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Private residence relief: non residential use: example: part of house used for business: apportionment

J acquired the freehold of a public house in June 1980 for £40,000. He sold it in January 2014 for £720,000 net of costs.

The public house consisted of three rooms used exclusively for business, a kitchen used both privately and for business, and six rooms used as his only residence.

The following Capital Gains Tax computation was submitted:-

  Disposal proceeds 720,000
less Value at 31 March 1982 100,000
  Gain 620,000
  Private residence relief 7/10 434,000

The private residence relief fraction is based on seven rooms out of ten being used as J’s residence. In these circumstances you will need to obtain the following from the Valuation Office Agency,

  • a valuation of the public house at 31 March 1982, see CG74300+
  • an apportionment of the value at 31 March 1982 between the three rooms used exclusively for business and the rest of the property
  • a similar apportionment of the consideration received.

The Valuation Office Agency reached agreement with J that the value of the public house at 31 March 1982 was £80,000 of which £48,000 should be apportioned to the three business rooms. It is agreed that £432,000 of the sale consideration can be apportioned to the business rooms.

The Capital Gains Tax computation is revised as follows

£ Private
    Disposal proceeds 432,000 288,000
  less value at 31 March 1982 48,000 32,000
    Chargeable gain 384,000 256,000