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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15916
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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We would like to know what tax implications are associated

Customer Question

Hello,
we would like to know what tax implications are associated with sub-dividing our rear garden and building a house to sell,or sub-dividing and selling the land with planning permission.
Are there any time factors we need to take into consideration in terms of tax implications?
EG would it be best to sell the main home before starting to build the new one ? Alternatively we could build the new home, move into that and sell the original "main" home. We have heard that if one gets planning permission for a new house within one's garden and then sells it "as part of the garden" (i.e. without a fence creating a separate plot) one doesn't have to pay Capital Gains tax. Is this the case?
We would like to know the most tax efficient way to proceed maximising our capital.
We are both low paid and self employed, my wife retiring soon and me in another 10 years if this has any relevance.
Submitted: 11 months ago.
Category: Tax
Expert:  TonyTax replied 11 months ago.

Hi.

Let me take a look at this and I'll get back to you. It will take a while to draft my answer.

Expert:  TonyTax replied 11 months ago.

You might refer to HS283 as part of this answer. I cannot give you investment advice. All I can do is tell you what the tax implications resulting from various different actions you take.

You can sell a plot of land up to half a hectare or 1.23 acres in size which has within its boundaries your house and pay no CGT so long as it has been your main residence for the entire period of ownership or it has always been your main home up to the point you move out and you sell it within 18 months of moving out.

If you sell a piece of your garden to a developer and your total plot area including the piece of garden you sell is no more than 1.23 acres as described above then you will have no CGT to pay as you will be treated as having sold part of your main residence.

If you develop a piece of your garden and sell the new house, you will be treated by HMRC as trading as a property developer and any profit will be subject to income tax and national insurance contributions if you are under state pension age for NIC purposes. You won't get away with building a house in your undivided garden and selling it tax free I'm afraid. If, however, you move into the new house, you could sell the old one within 18 months and pay no CGT assuming it was your main home for the entire period of ownership up to the point you moved out. Some people move into the new house for a year or so, then move back and sell the new build having established, in their view at least, that it was their main home and any gain should be tax free. HMRC may challenge such a move and seek to tax any profit on the new build on the basis that it was always the owner's intention to move back into the first house and that the move into the new build was to try to establish it as the main home to escape tax.

You could let one of the properties to give you an income but that would expose that property to CGT if and when you sell it depending on the facts and figures.

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

Expert:  TonyTax replied 11 months ago.

Hi.

I'm just following up to find out if my answer helped or if you have any further questions

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