Capital gains on a property that has been divided - used a holiday let and then for family

I bought a house with six rooms kitchen and bathroom for £180,000 in 2007. The entire property was rewired/replumbed etc., and I installed an additional bathroom, kitchen, heating system, etc., to create a self-contained annexe for my elderly father. The legal title was not split. As he then wouldn't move at the time, I let this out as a holiday let. My father came to live there (rent and bill free as a joint household, he shared meals etc) when the pandemic started. I am now about to sell the property. I think it likely the title will have to be split now to satisfy lenders. Can I deduct a) 1/3rd the initial purchase (=2 of 6 rooms), b) the capital improvement costs (I don't have receipts (fell out with builder who wouldn't then provide same) but was around £35,000, reasonable inference ? - the bathroom, kitchen etc are there!). Finally, as my father wasn't paying rent/bills and we were one household for this time, does Private Residence Relief apply for this period? Thanks.

Hi,

We cannot comment on any situation until after the fact as we might not be in possession of all of the facts and also cannot provide financial advice.

However, we can advise that if the titles between the annex and the original house were split, the apportionment of the initial purchase price between both, would need to be on a just and reasonable basis and consistent between both.  

The new kitchen and bathroom would be a capital cost and again, if no receipts can be provided, a just and reasonable estimate could be used.

You can see guidance on Private Residence Relief here:

CG64311 - Private residence relief: the entity of the dwelling-house: part of the building let

HS283 Private Residence Relief (2024)

Thank you.