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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Iam selling my property which consists of a bungalow value

Customer Question

Iam selling my property which consists of a bungalow value £320k and a parcel of land behind with planning permission for £340k both are in joint names, selling expenses of approx. £20k. Payment for bungalow within 2 months from now, land to be paid for one payment in March 2015, one payment as the build progresses over 2015/2016 with a final date for 2nd payment March 2016. How much capital gains tax will be due and how is it calculated?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

Can you tell me what the size of the total area being sold is please. Is the land part of your garden or is it distinctly separate? When the property and land were bought, were they on a single title? Are they being sold on a single title?

Is the price for the land of £340,000 set in stone or are there any contingencies?

Were the bungalow and land bought for a combined price? If so, what was that? If not, let me know what was paid for the bungalow and the land? Have you lived in the bungalow for the entirety of your ownership of it?

Customer: replied 2 years ago.

The total area is 1.67acres approx. 1/3 of an acre is land that the bungalow sits on.We have always used the land behind the bungalow as a paddock, it has 2 stables,a barn and tack room.There was no property on the land when we bought it in 1982, it was sold to us with outline planning permission for 2 dwellings. We designed and built the bungalow ourselves including the above mentioned stable block and 2 no detached double garages.

We have not signed or exchanged contracts yet so the £340k is not set in stone.The total sale price is £660k, realistically £320k is the max. I can ask for the bungalow which as our only accommodation is capital gains tax free.

The land was purchased for £10k.We have lived in the bungalow since we built it..

Expert:  TonyTax replied 2 years ago.

Thanks.

Leave this with me while I draft my answer. It will take a while so please bear with me.

Expert:  TonyTax replied 2 years ago.

Hi again.

You need to be careful how you dispose of the bungalow and land and try to have the exchanges of contracts as close as possible.

You would normally be allowed to sell a plot including the land on which the house has its footprint of up to half a hectare in size CGT free. Half a hectare is 1.23553 acres. So, on the face of it, you have a potential CGT liability on the gain made on 0.43447 of an acre(1.67 - 1.23553). If, however, you can successfully convince HMRC that all the land was required for the full enjoyment of the property, then you would pay no CGT.

However, there are caveats. If the stables have ever been used commercially as well as privately, that could impact on the relief. If the land with the outbuildings is separated from the bungalow and main garden, that may also be problematic. I realise that the land on which the stables is built may be separated because where there are stables, there will be horses.

It would be good idea to have a local land expert, surveyor or accountant with experience of this type of transaction take a look as he or she may have had experience in advising people such as yourself on the best way to present your figures to HMRC based on what they see on site. In any event, you will need to be able to back up your split of the sale price between the bungalow and the "permitted area" and the rest of the land, the gain on which may be taxable.

Assuming you bought the land after 31 March 1982, the £10,000 will be your basic cost for CGT purposes. You'd add to that the cost of building the bungalow and the outbuildings including labour and materials. Any professional fees you incurred on lawyers, architects etc would also be legitimate expenses.

You can deduct from the disposal proceeds the costs of selling the bungalow and the land (legal and professional fees, selling agent fees etc).

Clearly, you will get exemption from CGT for the sale of the bungalow and land up to the permitted area as a minimum unless the tax office argue successfully that the land with the stables is separate from the main house and garden or there has been commercial use of the land and stables. Whether you can get the extra 43% of an acre as tax free is dependent on the layout of the site and what similar properties in the area have in terms of land.

All the development cost figures and the tax free gain and the taxable gain, if any, will need to be worked out before any CGT liability can be calculated. The first £11,000 of gains an individual makes in a tax year are tax free. There are two rates of CGT, 18% and 28%. The rate or combination of rates that you will pay, if any, will be dependent on the sum of the taxable gain if there is one and your income in the tax year you make the gain. If the property is jointly owned, then the gain will need to be divided between the owners. If the disposal occurs in the current tax year 2014/15, then one of the following scenarios will apply to each part owner of the property:

1 If the sum of your income and the taxable gain is £41,865 or less, then all the taxable gain will be charged to CGT at 18%.

2 If your income alone is more than £41,865 or less, then all the taxable gain will be charged to CGT at 28%.

3 If your income alone is £41,865 or less but more than £41,865 when you add the taxable gain, then part of the gain will be charged to CGT at 18% and part at 28%.

I asked about the sale price being set because part will be paid in instalments. So long as the sale price is set in the contracts and is not contingent on future events, then any CGT will be payable for the tax year in which the contract is signed but it may be possible to pay the CGT in instalments as described here and here.

You should also refer to the information in HS283 here (pages 5 and 6), here, here, here and here.

If the stables is run as a business, there may be reliefs from CGT for the sale of business assets.

I hope this helps but let me know if you have any more questions.

Expert:  TonyTax replied 2 years ago.
I have to go out for a while but will be back to answer any follow up questions you may have in about 30 minutes.
Expert:  TonyTax replied 2 years ago.
Hi again.

It's been a few days since I answered your question. Is there anything you need further clarification on?

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