SolvedCG65270 | Private residence relief: realising gain: conversion into flats - example 1
From HM Revenue & Customs · Capital Gains Manual
In March 2015 an individual acquired a large house for £100,000. The house was used as her only residence. In December 2019 she incurred expenditure of £50,000 to convert the house into two flats. She ceased living there when the conversion was started, and the flats were put up for sale. The flats were sold in July 2020 for £150,000 each. The Valuation Office advises that the value of the unconverted house in July 2020 would have been £200,000.
The part of the gain which is excluded from relief because of the application of Section 224(3) is computed as follows.
| Minus | Description | Amount £ |
|---|---|---|
| - | Sale proceeds | 300,000 |
| less | unconverted value July 2020 | 200,000 |
| - | - | 100,000 |
| less | conversion costs | 50,000 |
| - | Gain attributable to expenditure | 50,000 |
The chargeable gain is £50,000 before annual exempt amount.
The gain chargeable under Section 224(3) cannot be greater than the total gain arising, and clearly is not in this example. In many cases though you will need to calculate the total gain arising to make sure.
Without the restriction under Section 224(3) the gain on the two flats would have been fully relieved. The period of residence ended in December 2019 but the subsequent period falls within the final period exemption explained at CG64985+.