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A recent decision made at a tax tribunal should have a positive outcome for taxpayers who have sold a business property which has also been their home. The most common examples of this will be people in the tourism and leisure industry who have sold hotels, guest houses, pubs or B&B’s, but it could equally apply to farmers or others where a property had a mixed use.
Prior to this tax case the Revenue have always insisted on the reliefs available on a “mixed use asset” disposal being applied in a specific way, which resulted in more tax being payable than accountants and their clients believe should be the case.
To illustrate, in the recent case a couple had a hotel which was sold for £855,000, on which they had incurred a capital gain of £575,000. They had occupied 65% of the property exclusively as their main residence, the remainder was used by paying guests.
The Revenue agree that 65% of the gain (£375,000) was effectively for their private home and was exempt from tax. What most people would then think is that the remaining 35% of the capital gain relates wholly to the business part of the property, so should therefore qualify in full for the available business reliefs.
However, the tax authorities have previously insisted that the remaining 35% of the gain (£200,000) should be split again in the proportion 65/35 in order to calculate the amount of further tax reliefs available.
In this case making this second adjustment resulted in the tax authorities trying to collect tax on roughly £80,000 more of the gain, meaning approximately £30,000 more tax being payable.
The taxpayers were understandably not happy with the Revenue calculations and took the case to the tax tribunal. The tribunal Judge stated in his decision that the Revenue’s calculation method is “not just and reasonable” and has confirmed that the taxpayers appeal should be allowed.
The Revenue have themselves acknowledged that using their calculation method produces what seems an “anomalous result”, but argue that this is strictly what the tax legislation requires. The Revenue have been allowed the right to appeal the decision, but have yet to show their hand.
There may be an opportunity to reclaim tax on a disposal made in the last six years.
If you think that you could benefit from this decision please contact Bevan Osgood at our Carlisle office on 01228 530913 or Rachel Lamb at our Penrith office on 01768 864466. Action will need to be taken before 31 January 2010, so please do not delay.
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