Client’s conversion

Our client has converted what was his main residence into flats. He incurred expenditure and there was of course the original cost of the property.

If the whole property or the individual flats are sold within three years can he still claim main residence relief on the whole gain?

Alternatively given the state of the housing market our client is thinking that he may simply rent the flats out for a few years.

In this case I assume that the conversion expenditure is simply carried forward; or is there any way that this can be set against the rental income?

I need to establish whether my client has done any similar conversions in the past but can readers let us know whether it is likely that HMRC might argue that our client is trading and what factors would be important? Are there any...