Apportionment of Commercial and Residential CGT Rates

I bought an investment property in 1998 which is mixed use - part commercial and part residential (a flat above a shop) but which has always been held under one title. When it comes to any sale of this property, I understand that there are two rates of CGT depending on usage i.e. 10% and 20% for commercial and 18% and 28% for residential. I would be very grateful for help with the following questions; 1. How do I apportion any gain in value? The commercial part is about 60% of the property and the residential 40% - is that the split that I would use or is that too simplified? 2. Where there has been improvement expenditure that applies to both floors, would I use the same approach as in any answer to question 1 above? 3. In terms of guidance as to what constitutes acceptable expenditure on improvements, is the HMRC Capital Allowances Manual the correct place to look for guidance? https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual Thank you

Hi,
 

1. You should have been given a seperate value for each at the time of purchase and the same will apply for the sale for the correct split to be applied. if not, you will need to contact the valuation office for details. 2. This will; sed on the application at point 1.   3.  For expensditure please refer to : Capital Gains Manual    and associated links    . Thank you.

Hello Thank you for your reply. The property was sold as one complete unit so the parts were not valued separately at the time. I followed up your suggestion and contacted the VOA but they cannot help and have replied as below: “The VOA cannot advise taxpayers on the valuation/amounts they should include on any particular tax return.” “Any queries to a tax form should be directed to HMRC first to establish the type of valuation they will require to assess how best to proceed.” Which therefore brings me back here to ask what further advice you would give? The only logical approach that I can think of is to obtain valuations for each part of the property at today’s value and then apply the same proportions to the historic value – a simple worked example of which is below: Say the overall property is valued in 2023 at £1,000 which is split down as follows; Commercial element: £400 (so 40% of the overall value) Residential element: £600 (so 60% of the overall value). If the property was originally acquired for £500 in 1998 and the proportions from above were applied to that figure then the historic valuations would be; Commercial element: £200 (i.e. 40% of the overall value) Residential element: £300 (i.e. 60% of the overall value) The CGT on each element could then be calculated from there. Does the above sound like a practical approach that would be acceptable to HMRC - or is there a better solution? Thank you.

Hi,

You cannot apply this as the increase in value may not be at the same rate. You will therefore need to contact an estate agent who will be able to give you values of similar properties that were sold at the same time of purchase. You will also need to obtain a separate value for each when you sell.

Thank you.