Capital Gains Tax - CGT - on converted outbuildings - tax and financial advice from independent financial adviser (IFA) Isis Financial Planners

Isis Financial Planners' Maggie Fleming answers reader's questions in Saturday's Daily Telegraph newspaper for the Property Clinic section.

There is a wealth of information on all aspects of property and tax from Capital Gains Tax and Inheritance Tax to other technical and challenging issues of this complex subject. This page shows the articles for March 2010. To browse the articles from a previous year, please visit the main Property and Tax page of this website.

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• Capital Gains Tax - CGT - on converted outbuildings - 30 March 2010
  
We are renovating a house with outbuildings. Our planning application to create ancillary accommodation was rejected and we were only allowed to convert the barn into a holiday home, which we're living in while the house is gutted. In the future we may apply for change of use so my mother can move in with us. If we never let it, can we avoid capital gains tax as it would effectively be part of our primary residence?

Maggie Fleming writes:

This is one of the most difficult areas of capital gains tax and there have been many legal cases, which have helped produce some general principles. An outbuilding can be considered part of the residence if it is within the "curtilage" of the main house; basically it must be close to the main house and an integral part of it. It can also attract relief automatically if it is part of the grounds and your entire property occupies no more than half a hectare. However, the outbuilding must also serve your occupation and enjoyment of the property; for instance, if it were occupied by a servant or used by you in some capacity. Strictly speaking, occupation by your mother might not count. I note, however, that the official help sheet on the topic (IR283) does suggest that relief might be available for "a granny flat near the house" so HMRC may not have taken the point. Certainly, it would appear worthwhile making a claim when you sell. And, if the barn is your main residence now or in the future and you do rent it out commercially, you may be entitled to relief when you sell.

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