Capital gains tax and rollover relief on UK properties
Question:
I own a number of properties in the UK and am looking at selling them to purchase a hotel.
The capital gains on each of the properties is substantial and I'm looking into whether I can claim rollover relief to reduce my capital gain.
Details of the properties are as follows:
Property 1 -- I purchased a residential property in 1994 which was let on assured shorthold tenancies. However as from 1999 it was let on a nightly basis to the local authority, which placed separate tenants in each room. It was effectively a hostel. All utility bills and other bills of running the property have been paid by me.
Property 2 - . I bought a warehouse with an adjoining flat. As above the flat was let out on an assured shorthold tenancy for a couple of years and then let on a nightly basis to the local authority.
I'm now considering selling the properties to buy a hotel. If I could get rollover relief that would be great.
I've spoke to someone who has been told by the Revenue that if he had been letting his residential properties to the Home Office for asylum seekers then they would qualify for rollover relief.
So my question is: Do you think I'll be able to claim rollover relief?
Answer
You should take specific advice on the detailed application of the rules to your scenario, including the various options you raised however in essence the key issue will be whether your activities will be regarded as trading or not.
If they are regarded as trading you would then be eligible for rollover relief as the properties would fall to be qualifying assets as they are used for the purposes of a trade.
Rollover relief applies where there is both a disposal and acquisition within (usually) three years of qualifying business assets. As well as rollover relief you may be able to claim Entrepreneurs Relief if you were selling the whole or part of a trading business. It is however rare that the letting of residential accommodation would constitute a trade. Under normal circumstances it would only be a hotel, guest house, hostel or other bed and breakfast activity that could constitute a trade.
The key issue is the fact that that the 'tenant' does not occupy the property for any lengthy period and does not usually obtain a leasehold interest, instead they would occupy under licence. In addition in these circumstances ancillary services are typically provided that would give the activity the appearance of a trade.
In your case the residential aspects may well qualify for trading treatment.
It's certainly not a straightforward area but in a similar way to the letting to the home office for asylum seekers the level of additional services would indicate a trading activity.
You may therefore have a good claim for rollover relief to apply to the residential aspect.
About the Author
The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).
He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
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