Section B - Case 3 (Oakfield Farms)

Before his death, Arthur sold a farmhouse that he had lived in for 10 years. For the entire 10 years, he used one room (representing 10% of the house) exclusively as a farm office.

How will Principal Private Residence (PPR) relief apply to the capital gain on the sale of the farmhouse?

Answer options:

100% of the gain is exempt because it was his main residence.

PPR relief will be restricted; 90% of the gain will be exempt, and 10% will be chargeable.

No PPR relief is available because part of the house was used for business.

The entire gain is chargeable, but Business Asset Disposal Relief can be claimed on the 100%.

How to approach this question

Identify the exclusive business use (10%). Apportion the gain: the residential part (90%) gets PPR, the exclusive business part (10%) does not.

Full Answer

B.PPR relief will be restricted; 90% of the gain will be exempt, and 10% will be chargeable.✓ Correct

Principal Private Residence (PPR) relief exempts the gain on the disposal of an individual's only or main residence. However, if part of the home is used *exclusively* for business purposes, PPR relief is not available on that part. Since 10% was used exclusively as an office, 90% of the gain is exempt under PPR, and 10% is a chargeable gain (though it may qualify for BADR).

Common mistakes

Assuming non-exclusive business use restricts PPR, or assuming exclusive use destroys the whole relief.

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