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bigduckontax
bigduckontax, Accountant
Category: Tax
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I have planning permission to build a house in the garden of

Customer Question

I have planning permission to build a house in the garden of my family home.
My intention is to purchase a new family home and move into it as soon as possible.
After moving into the new home we will change the mortgage on the existing house to a buy-to-let and rent it out while the new house is being built in the garden.
Once the new house is built, we intend to sell them both. i.e. the existing house and the new house in the garden.
My question is how to go about this in the most tax effecient way.
If we buy the new home will we be exposed to 2nd home stamp duty?
Obviously we'd like to minimise stamp duty exposure and capital gains tax.
Submitted: 26 days ago.
Category: Tax
Expert:  bigduckontax replied 26 days ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

As this is a second residence you own then there will be a Stamp Duty Land Tax (SDLT) surcharge of 3%. If you dispose of the new residence within three years you can apply to the Stamp Office for this to be refunded.

Now, regarding Capital Gains Tax (CGT), how large is the overall plot of land?

Customer: replied 26 days ago.
The overall plot is abou 0.25 acres
Customer: replied 26 days ago.
If I change the existing home to a BTL mortgage and purchase the new family home as my Principle Private Residence, can I forgo the 3% SDLT surchage and pay it at the normal rate?
Customer: replied 26 days ago.
When you say 3% surcharge I assume you mean 3% on top of the base rate?
Expert:  bigduckontax replied 26 days ago.

This is within the 'permitted area' of half a hectare. If you sell the land whilst you still reside there then there is no CGT. However if you are selling the plots with planning permission then the uplift in value is treated as a gain and CGT will apply. However, as you have let the old house any gain will be subject to CGT. However a proportion as for the time it was your sole or main domestic residence and the last 18 months of ownership when you are deemed to be in residence even if this is not the case Private Residence Relief (PRR) applies and this relieves CGT at 100%. You will also be able to offset the gain by the non cumulative Annual Exempt Amount (AEA) of 11.1K and also Lettings Relief (LR) up to 40K.

If you acquire a second home the SDLT surcharge on top of the base rate applies irrespective.

Customer: replied 26 days ago.
how do you recomend I proceed in order to minimise my liability?
Could I set up a Ltd Co to execute the build and sell the plot and existing house to the Ltd Co?
Would that mean no CGT?
When the new house is built and I sell it, along with the existing house, what taxes are the company exposed to?
Expert:  bigduckontax replied 26 days ago.

Correct, the plot sale to the Ltd Coy, if you were still residence, avoids CGT as the site is within the permitted area.

Companies are not exposed to the CGT regime, all surplus or loss merely applied to the trading account and ultimately reflected in the Profit and Loss Account (P&L).

Customer: replied 26 days ago.
Can you advise a recomended sequence of events to get through this such that I minimise my tax liability?
Expert:  bigduckontax replied 26 days ago.

Depending on the possible gain by the company which would be taxed at 20% the probable minimal tax exposure would be to sell to the Coy, build on the plot then sell. Thus only the gain by the company, presumably minimal, would be exposed to CGT. The sale of the original house will probably avoid CGT altogether as AEA and LR will probably reduce the gain to zero anyway.

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Customer: replied 26 days ago.
If I sell to the company, what SDLT is the company exposed to?
Expert:  bigduckontax replied 26 days ago.

25,001 – 250,000 - 2%

250,001 – 925,000 - 5%

925,001 -1,550,000 - 10%

1,500,001 and over - 12%

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