Business Taper Relief for HMO's ?

[BestLandlord]

Dear All,

I have just sold a nursing home and I am about to buy a HMO.

I qualified for only 10% CGT on the sale of my Nursing Home as it was a 'proper going concern'. However, I didn't get taper relief for rented houses which I also sold.
Can anybody tell me if a HMO business is a 'proper going concern' or bona fide 'business' which would qualify for business taper relief of 10% after 2 years of ownership ?

Regards

BestLandlord

[Editor]

Letting property is classed as investment income in the eyes of HM Revenue and Customs, therefore you cannot get business asset taper relief.
The exceptions are holiday lets (classed as a business but must meet strict criteria) and some commercial property (business lettings) which meet certain criteria.
See: http://www.hmrc.gov.uk/manuals/pimmanual/index.htm
and
http://www.hmrc.gov.uk/leaflets/cgt1.htm

[David Lawrenson]

Yes, that's correct.
Unfortunately at the moment you cant get Business Asset Taper Relief, even though with the rules on HMOs as they are it's now more of a business than anyting else!
Hopefully the govt will see sense and change this one fine day!
David Lawrenson Topic Expert. Author of "Successful Property Letting"
www.lettingfocus.com for buy to let advice

[Tax Accountant]

Dear All,

I have just sold a nursing home and I am about to buy a HMO.

I qualified for only 10% CGT on the sale of my Nursing Home as it was a 'proper going concern'. However, I didn't get taper relief for rented houses which I also sold.
Can anybody tell me if a HMO business is a 'proper going concern' or bona fide 'business' which would qualify for business taper relief of 10% after 2 years of ownership ?

Regards

BestLandlord

A nursing home consists of providing accommodation as well as providing care home services such as nursing. You may also need to employ people to enable you to provide the necessary level of services. This is similar in a lot of respects to running a hotel. This is the reason that a nursing home qualifies as a trade for taper relief purposes and attracts business asset taper relief. This relief is 75% after 2 years, meaning that only 25% of your gains is charged to CGT. If you are a higher rate taxpayer, ie 40% taxpayer, you will be charged 40% on 25% of your gains, effectively giving you a 40% x 25% = 10% overall rate on your whole gains.

Even a HMO is principally a property investment. Just because there are say 5 persons living in individual rooms in a house, does not make this any less of a property investment. Any kind of property investment qualifies only for the less attractive non-business asset taper relief. This is 5% at the end of 3 years of ownership and rising by 5% per year until it reaches a maximum of 40% after 10 complete years.

The querist makes reference to 'proper going concern' to determine if a business qualifies for business asset taper relief. As far as I am aware, there is no such term as 'proper going concern'. I think this reference should be to a business which is a 'going concern' business, ie a trade. An HMO is certainly not a trade in the same sense, at least not in the eyes of the law.

Ramnik