Capital gains on converted building/workshop in home

stevo5678

I have a client who has a separate building at the back of his garden used solely for business. My understanding is that there will be capital gains tax on this when sold.

The last accountant did not claim the mortgage interest related to this building (that can be directly attributed). Am I right in thinking that as it's clearly a business asset subject to capital gains tax there is no requirement/advantage to disclaiming the mortgage interest??

On another note how would you allocate the gain to the outbuilding - I assume purely based on thee cost of it as a proportion to the total cost of the property.

Thanks

T.C.

If the last accountant didn't claim for ANY business expenses on this building, then you may be able to avoid capital gains, ie who knows what the building was used for? Maybe that is why the accountant didn't include this. He may have been trying to keep the client out of capital gains liability.

Carole

I'm not an MIP at the moment but have been before and I did come across this years ago. I would back up T.C.'s reply in that if no separate expenses claimed for the outbuilding then no cg liability.

deanshepherd

In my opinion, whether expenses have been claimed in accounts or not is irrelevant.

The outbuilding either qualifies for PPR relief or it doesn't.

Assuming it doesn't, then I would ask the estate agent to price the property with and without the outbuilding. In most cases, unless the outbuildings are particularly plush and have been owned for a significant period of time, the value added by the outbuildings is usually less than the original cost.

If this was not the case then everybody would install a garden office immediately prior to selling.

stevo5678

Thanks Dean.

This is what I thought, hence my confusion with the last accountant not claiming mortgage interest.

Well, I'll explain to my client that there's good news and bad news. Bad news is he will have a CGT liability good news we can claim a few years mortgage interest!

Cheers

Steve