The first example shows how the rules for attributing base costs etc work where a property asset that is not easily severable into separate parts has had dual usage. The second example is where the property has discrete parts. See GREIT05010 for guidance.
Company C joins the regime on 1 January 2007. At that time C
owns a single storey office building which is divided into three
similar units with a communal reception and car park (of roughly
the same floor area as the building). The property is rented to F
Ltd.
On 1 June 2007, F sublets one unit back to C Ltd for use as a
regional office for both its tax- exempt and residual businesses.
C sells the property on 31 December 2007.
When C sells the property one sixth of the gain will be
chargeable to tax on C (residual) because one third of it was used
for a non-exempt activity (which includes owner-occupation for the
purposes of determining if an activity is tax-exempt, section
107(5) FA 2006) for half of the period.
If, instead, at 1 January 2007, C had a licence that allowed it
to use only the car park at weekends (104 days per year) and the
property was sold on 30 September 2010.
14% of the gain would be chargeable on C (residual) based on
its use of about half the property for approximately 28% of the
time.
The total non-exempt use of the property was 390 days out of
1,369 days. Although there is a de minimis rule for use of less
than 12 months, it does not exclude from ‘temporal’
apportionment the first 12 months of other use.
Company D joins the regime on 1 January 2007. At that time D
owns a freehold office site, divided into four equal wings. The
property is rented to G Ltd. On 1 June 2007, G sublets one wing
back to D Ltd for use as a regional office for both its tax-exempt
and residual businesses.
If the non ring fence use is expected to be permanent, then
this change of use would be treated as a transfer of part of the
freehold site to the non ring fence part of D. This would give rise
to a capital gain in the hands of the tax-exempt part of D at the
date of the change of use.
If the arrangement is temporary, or part of a more flexible
pattern of use of the office site, the change of use would be
reflected in the division of any gain on disposal of the property
by D, as in example 1 above.
