Capital Gains Query

Yes.

Suppose you sell in June 2006. That would give you 7 years of ownership. The last three years qualify for PRR because it has been for a time your PPR. To calculate your gain start with the £400k and deduct the acquisition value of 100k and the conversion costs (materials, fees, and labour but not your own) and the expenses involved in the sale (estate agent fees etc). Suppose this comes to £280k. PRR reduces this to four sevenths, £160k. Taper relief should take off another 25%, so your taxable gain will be £120k, minus your personal allowance of almost £9k. On the remaining £111, expect to pay 20% of that part of it which corresponds to how much your other income is short of the higher rate limit, and 40% on the rest (i.e. most of it). You're looking at a tax bill of some £40k.

You could persuade your partner to sell her place and move into the farm house with you, thereby not only postponing the problem, but in the fullness of time increasing the proportion of the period of ownership during which the property will have been your main home by the time you sell it.

(2) You could marry your partner and then gift half the property to her. Then you would get the benefit of two £9k personal allowances, but you would lose half the PRR because the property will have been your home for a time but not hers.

(3) You could do both (1) and (2), thereby not losing half the PRR.

Or you could just pay the damned £40k and be done with it. It would still leave you with £360k which is not to be sneezed at. Use some of the money to buy half your partner's place, and she can pay off her mortgage with that.

Thanks for your reply Roland. I have a couple more questions...

When I was gifted the building in 1999, how is the value back then arrived at? I estimated it at £100,000, but obviously if it was worth more than that then my gain would be reduced?

I have read in the revenues' guidelines that "if you do not occupy your home when you acquire it because you have to carry out renovations, you can treat the first 12 months as if the house had been your only residence, and in exceptional circumstances up to 2 years is allowed" The farm building was uninhabitable from when I acquired it in June

1999 until the renovations started in July 2003. Do I qualify for any extra relief?

The cost of the renovations/legals etc is £230,000-£250,000.

Indeed it would. Meanwhile the renovation is done and all evidence (or do you have photos? plans?) of what state it was in is gone. A valuation done at the time would have been a good idea, and could have mattered for IHT purposes if your mother had died.

I would have thought those reliefs apply only in circumstances where the purpose of the acquisition was that the property would become your home, and that the only thing preventing this happening is that renovations would need to happen first, and indeed would be carried out within the 1-2 year time frame. In your story that seems not to have been the case, as you waited 4 years before even starting to do anything towards that end.

Well there you go, that reduces your gain to only £50-70k, and then 75% of 4/7 of that, minus £9k, putting your tax bill well down into single figures. Nothing to worry about except that someone might try to amend your estimated £100k downwards.

Thanks, it's all becoming a lot clearer - when you first look at the CGT rules, it seems like a terrifying amount they're going to take, but when you calculate it all out it's not so bad.