Could someone help me on working out the tax implications if I build anew home. I am really struggling to get clear advice , any help will be much appreciated? I have summed up what I think are my two options adding in approximate values, as it may be easier to illustrate with them included! Apologies it's quite long! I currently live in an unmodernised 3 bedroom detached bungalow worth about £600 000 (no.35 ) with no loft conversion. Its roughly in the middle of the property so can’t just build another detached house next to it. As mentioned I have two options: 1) Demolish the bungalow then build two detached bungalows, each 4 bedrooms (going into the loft). I would then move into the new 35a and sell 35. Build cost of £180 000 each house. Sell for £600 000 each 2) Take a side room off the existing bungalow to get some extra land – build 35a on the party wall against 35 and go into the loft on both sides. Ie. Create two semi detached properties, against I’ll sell 35 and move into 35a. Build cost £100 000 for 35 / £180 000 for 35a. Sale price of £575 000 each As I understand in terms of VAT Option 1 will be VAT free on both builds. When I sell 35 do I have to pass the VAT onto the buyer? Option 2 will be VAT free on 35a but not on 35 as that will be just a renovation. I assume I’ll need to split the costs from the builder and claim VAT back on 35a amount In terms of CGT Option 1 I understand that I will not be able to get PPR relief at all on 35 when I sell it as I have never lived there. I’ll move into 35a so any subsequent moves I’ll get PPR relief Option 2 a suggestion has been that I could get part relief – how would that work? Ie that my original 35 (ie the whole property) is £600 000. If I then sell semi-detached 35 for £575 000 its not in HMRC’s favour. I have heard of homeowners who have lived in a detached house with excess land, partitioned off a section of the land and built a property that they subsequently moved into. They have claimed PPR relief on the full amount, as if they have just sold up and moved home, so I assume this is legal. In my case I can’t do that because my house in the middle of the property. Any advice will be much appreciated! Or a reference for a property tax consultant will also be apprecaited! Regards Anthony
Thanks for answering my questions, I just wanted to clearer on a few points:
For option 1 (ie 2 new builds)
You advised that it's the value of the land and build cost – would that be the value including the current house on it? (I assume done by some RICS person)
Are these calculations correct as an example:
£600 000 (value of current property as a whole, land and house at time of demolishing for new build)
£180 000 X 2 build cost of 2 new detached homes
Sell for £600 000 each home
So for new 35 house I will be liable for £600 000 (sale price) - £180 000(build cost) - £300 000 (half of original property price, which is split in two equally) = £120 000
I assume if I sell immediately it will be treated as a development and taxed as income (40% as I am a higher rate tax payer), but if I rent it out it will be an investment and when I do sell it I’d pay capital gains tax on the £120 000?
For 35A I will move into – so I won’t be liable for any of the above?
For option 2
I have been told that as I am doing a fair amount of work on the existing 35 (i.e. going into loft and adding value) this portion of extra work will not be part of PPR but I can see you suggest it will be. 35 will still be owned by me until I move into the 35A so it will be a straight move, but I would have had to move into temporary accommodation while the renovations are taking place, only for 3 months though! I am a bit worried about that though. Do you think I will be ok?