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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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L have partially built a bungalow in my garden which has

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l have partially built a bungalow in my garden which has stood empty for the last four years due to my wife and l separating. We have now finally sold the marital and have the funds to complete the bungalow in the garden. We have now been told that we must pay capital gains on the profits from the bungalow when sold. Can you tell me if this is right please as l know of lots of people who have done the same and not paid any capital gains.
Kind regards
Paul Callaghan

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

Can you tell me what your initial intentions were as far as the bungalow is concerned and what you intend to do once you have completed it. Has the sale of the marital home completed? When did you separate? Which of you moved out?

Customer: replied 1 year ago.
We first intended living in the bungalow. We now intend selling it, we have already completed on the marital home. The courts have set out an order for us to sell everything we own and split it 50/50. I moved out in 2012.


Leave this with me while I draft my answer.

You mentioned other people doing the same as you and not paying CGT. That probably has more to do with the gain not being reported than anything else I would venture to suggest. There are right ways and wrong ways of exploiting part of your garden.

If you have a total plot size of no more than half a hectare of 1.23 acres including the footprint of the existing house, you can sell a piece of your garden and pay no tax. However, you must sell the land first before you sell the home. If you build a house yourself or have one built with the intention of selling it, then you may be treated as a property developers by HMRC and charged to income tax and national insurance contributions on any profit you make. If you move into the new home and then sell the old one, you should be fine and pay no tax.

As you are unlikely to ever live in the bungalow, I'm afraid that if you sell it a profit, you will have CGT to pay with the first £11,100 for each part owner being tax free due to the annual CGT exemption. The land on which the bungalow is built will have a cost/value attached which will reduce any gain you make. HMRC may allow some main residence relief as it was your intention to live in the bungalow but your circumstances didn't allow that to happen. The problem is you have sold your main home and the land that's left is not your home.

Take a look here and here for more information.

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

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Customer: replied 1 year ago.
Thank you for your answer to my question Tony. I thought l should seek a second opinion on this one and am glad l did, at least l now know there is no way of getting around the CGT.Kind regardsPaul Callaghan

Thanks. I'm sorry to be the bearer of bad news.