CG65265 | Private residence relief: realising gain: conversion into flats

The value of a large undivided house may be increased by dividing it into self-contained flats. Each flat may then be sold separately. Alternatively, the owner may retain one flat as his or her residence and sell or let the rest.

A measure of relief will be due on each flat which formed part of the owner’s residence when the property was a single undivided dwelling-house. Similarly, where the disposal is before 6 April 2020, a measure of relief under s223(4) TCGA92 may be due on any such flat which has been let before sale, see CG64710+. The examples at CG65270 and CG65271 show how the restriction required by s224(3) TCGA92 should be computed.

The computation of the restriction required by s224(3) TCGA92 may be complicated by the presence of sitting tenants. If, before conversion, there were tenants occupying part or all of the undivided house, the valuation of the unconverted house should take account of those tenancies. If, before sale, a payment is made to a tenant to secure vacant possession, that payment can itself give rise to a restriction of relief under s224(3) TCGA92.