Graham Buckell points out various tax traps to watch for when selling or developing part of your garden.
Over the years the trend has been towards smaller and smaller gardens, reflecting the increasing cost of land. Some, owning houses with particularly large garden areas, may be tempted to sell or develop part of their garden. Often principal private residence relief will apply to exempt the capital gain but there are a number of traps to watch for:
- The overriding rule is that only total land up to ½ hectare (1.2 acres) is automatically exempt. Anything in excess must be justified as being appropriate to the character of the house. Selling some land whilst retaining the house makes this argument particularly difficult but not impossible.
- The land must remain part of the garden at the time of sale otherwise relief is lost completely. So do not sell the house and remaining land first and do not split the land off (fence, etc.) before sale or starting to develop.
- If self-developing for sale do not elect to transfer the land into stock at cost providing the capital gain at start of development (see point 2) remains exempt.
- If self-developing to occupy the new house trigger a gain (perhaps by use of a trust) at the outset (subject to point 2) otherwise the gain when selling the new house in the future will be time apportioned and the gain attributable to the period prior to building the new house (i.e. the period from when the old house was purchased) will not be exempt.
If you would like to discuss this issue with Graham, please contact him on 01332 365855 or firstname.lastname@example.org. Read Graham's full article for "Taxation" magasine here.
As always, the nature of this advice is generic. You should take no action as a result of it, without consulting your professional advisor.