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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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I have a question on tax implications of demolition of main residence, then self build

Resolved Question:

Hi, I have a question on tax implications of demolition of main residence, then self build a pair of semis, to live in one and sell the other? I am unmarried, but live with my partner in the current house which is in her name.
Submitted: 9 months ago.
Category: Tax
Expert:  TonyTax replied 9 months ago.
Hi. If you do as you say in your question, then your partner will almost certainly be treated as trading as a property developer by HMRC with the profit from the house disposed of being liable to income tax and national insurance contributions as opposed to Capital Gains Tax. That is, unless you it is let for a year or two before selling it in which case, the gain would probably be liable to Capital Gains Tax. If you move into the other property and subsequently sell it a few years later and move elsewhere, the gain will exempt from CGT due to the main residence rules which you can read about in HS283 here. You could ease the burden of taxes from your preferred option by operating the development as a partnership as opposed to as a sole trader (your partner on her own). If you sold a piece of your land, you could avoid any taxes so long as the total area of the existing plot you own including the footprint of the house was no more than half a hectare in size as you would be treated as having made a part disposal of your main residence. There is more information on this in HS283. I hope this helps but let me know if you have any further questions.
Customer: replied 9 months ago.
Thanks for answer, so even though the house we intend to demolish is currently or main (only) residence, she would be deemed a developer and taxed as a personal business?
Expert:  TonyTax replied 9 months ago.
You would need to divide the costs of demolition and development between the two properties so that if one was sold immediately, you would be able to work out what you have to pay tax on (the profit from trading as a property developer) with the balance of the costs being allocated to the property that you intend to occupy yourselves. As I said, provided you lived in one of the properties, any gain made on a disposal later on of that one would be tax free. It might be more cost effective to sell the land for the second property to a developer as the proceeds from such a sale could be tax free as I pointed out in my previous post.
Customer: replied 9 months ago.
Ok that helps a lot. Many thanks.
Expert:  TonyTax replied 9 months ago.
Thanks and good luck with whatever you decide to do. Would you mind rating my answer before you leave the site please.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15763
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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