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HMRC internal manual

Capital Gains Manual

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Gifts: computation: part trade use of asset

C gives his daughter D property comprising a shop with a flat above.

The shop was used for trade purposes immediately before the gift but had been so used for only five out of the ten years of ownership.

At the time of the gift, the Valuation Office Agency agrees that the shop is worth £80,000 while the whole of the building has a market value of £120,000.

The cost of the whole building to C was £50,000 and indexation allowance of £10,000 is due.

A joint claim is made for relief under Section 165.

The computation is as follows

i) C’s unrelieved gain on disposal is

  £
   
Market value at disposal 120,000
Less cost  5 0 , 0 0 0
Unindexed gain 70,000
Indexation allowance  1 0 , 0 0 0
Chargeable gain  6 0 , 0 0 0

ii) No consideration has been received.

There is a reduction to take account of 5 years non-trade use, see CG66951. This is

60,000 x 5years = 30,000
         
    10    

There is a further reduction to exclude the flat. On a `just and reasonable’ fraction, see CG66952, this is

30,000 x 40,000 = 20,000
         
    60,000    

 

The held-over gain is therefore 20,000.

  £
   
C: Gains before relief 60,000
Less held-over gain  2 0 , 0 0 0
Assessable gain  4 0 , 0 0 0
D: Market value 120,000
Less held-over gain  2 0 , 0 0 0
Revised cost  1 0 0 , 0 0 0