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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15946
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am the owner of a house and associated land. I am considering

Resolved Question:

I am the owner of a house and associated land. I am considering demolishing the house to free up the land for development for 3 x building plots with full planning permission. I plan to sell two of the plots and keep one to build a new property on for myself to live in.
Could you tell me what the tax implications would be.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.
The likelihood is that if you do what you have set out here, you will be treated as trading as a property developer by HMRC with any profits from the two properties you sell being subject to income tax and national insurance contributions and not capital gains tax. You would need to divide the price you paid for the land and the house between the three new properties and add in the costs of development.
Assuming you live in the third property for the entire period of ownership, any gain you make will be tax free under the main residence rules.
If you let the two properties you plan to sell for a year or two, you might be able to sell them and pay CGT instead of income tax and national insurance contributions because by holding onto the properties for a while because you will be seen as a property investor as opposed to a property developer/trader, though it is possible to be both at the same time. Some years ago, I had a client who both developed and sold property and bought or built and let property. The tax treatment on disposal was different for different properties.
I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Hi Tony,
I think you may have misinterpreted my question as I am only considering selling 2 thirds of the land to a developer whilst I retain one third of the land for myself to self-build.
I will not have ANY involvement in the building or selling of the houses on the 2 thirds of the land that will be sold to a developer (to build two properties on) However I will be retaining 1 third of the land for my own self build property in which I will live in.
Expert:  TonyTax replied 1 year ago.
My apologies. Is the land connected to the house? How big is the total plot or the two plots individually (the house and gardens and the associated land) if they are separate?
Customer: replied 1 year ago.
Yes the land and the house are together. The total plot is 30m x 30m
The existing house sits in the middle of the plot and It is proposed to demolish the existing house and sub divide the plot into 3 equal plots (3 plots of 10m x 30m). I will retain one plot to self build my house upon and sell the other two either individually or together to a developer to build a house on each of the plots with full planning permission.
Expert:  TonyTax replied 1 year ago.
Thanks.
You might refer to HS283 here when you have read my answer:
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief#calculating-the-gain-where-only-partial-relief-is-due
If you have a house and the total area of land covered by the house footprint and the gardens/land does not exceed half a hectare or 1.23 acres, then on a disposal of the entirety, your gain will be covered by main residence relief.
If the total plot is larger than half a hectare then unless the house is of a type or size that requires a larger piece of land for its reasonable enjoyment (whatever that means but think country home or small stately or large stately home or imposing in town property) then part of the gain may be chargeable to Capital Gains Tax.
In your case, if the associated land is completely cut off from the house and garden or even fenced off or used for a commercial purpose or let then part of any gain may be taxable. Given that you want to demolish your house, sell two plots and build a house for yourself on the third, the division of the original cost of the house and land could be complex.
However, as your house sits in the middle of the total plot and it is less than half a hectare in size, then the gain made on the disposal of the two plots should not be at risk of being charged to CGT. As I said in my previous post but one, if you live in the self-build until you sell it, any gain you make on that will be CGT free.
Customer: replied 1 year ago.
Many thanks for your comprehensive answer.
Do you think it would be beneficial for me to run this by the HMRC as it seems pretty complicated?
Also if i eventually sold the self build house would I then be subject to CGT/
Expert:  TonyTax replied 1 year ago.
There's nothing overly complicated here.
As your plot is less than half a hectare, the two 30 x 10 plots can be sold CGT free. It would be different if you developed them yourself as I explained earlier. Many people sell plots of land in their garden tax free. Just google "sell piece of garden to developer tax implications".
As I said in my previous post but one, if you live in the self-build until you sell it, any gain you make on that will be CGT free.
Expert:  TonyTax replied 1 year ago.
You may also be interested in the VAT reclaim scheme for self-builders which you can read about here:
https://www.gov.uk/vat-building-new-home/overview
Customer: replied 1 year ago.
Just one final question; Am I right in thinking that the self build would be subject to capital gains tax when at some stage I may sell it?
Expert:  TonyTax replied 1 year ago.
Not if you live in it for the entire period of ownership as I said earlier.
Customer: replied 1 year ago.
Many thanks
Expert:  TonyTax replied 1 year ago.
Thanks and good luck.
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