Build your own house - capital gains tax

StavrosTheBrave

Right then, my situation is as follows...

I have the potential opportunity to come by some prime builiding land for next to no cost through the division of a family plot and some rather exceptional circumstances, we have had a rough quote to building the house and it came in around £50k. The cost isn't really important, but the house will be worth somewhere in the region of £150k - £250k when built and we therefore stand to realise a fairly substantial gain.

The problem we face is this - we live 200 miles from the house (in rented accomodation) and both work in our present location. I am familiar with principal private residence relief and that you automatically qualify for the relief for the final three years you own the property, should you have lived there at some point.

What I want to understand is how do you satisfy HMRC that you have lived there, how long does it need to be? what are the requisite criteria? (i.e utility bills in your name, employment in the area etc etc) how aggresssive are they in assessing your intention to 'buy a property and sell on quickly for a profit' if we decide to build the house and sell on immediately?

Any advice or experience would be appreciated.

:beer:

silvercar

What I want to understand is how do you satisfy HMRC that you have lived there,

You live there!

how long does it need to be?

No time is specified. As long as you are truely living there, there is no minimum time. Some accountants quote a year to avoid questions being asked.

what are the requisite criteria? (i.e utility bills in your name, employment in the area etc etc)

The criteria is that it is your home. If you are saying what can you get away with ie what will they check, credit card addresses and the address you register with your employer are often quoted.

how aggresssive are they in assessing your intention to 'buy a property and sell on quickly for a profit' if we decide to build the house and sell on immediately?

Land Registry supply details to the revenue. Obviously, if the house is sold when it has just been built, you cannot claim you have lived in it. If you built a property with the intention of living in it but sold it before moving in, the revenue wouldn't accept that you had lived there.

Don't let the tail wag the dog. If you have a tax bill it is because you have made a gain.

To make another point, as a one off you would probably get away with calling this a capital gain. If you repeated this there is a reasonable chance the revenue would consider that this is your trade and clobber you for income tax rather than CGT!

Doozergirl

StavrosTheBrave wrote: »

we have had a rough quote to building the house and it came in around £50k.

I don't mean to pee on your parade, but are you planning on building a shack? What sort of square footage are you looking at? Trying to connect up services to a virgin plot will take a really nice chunk of that 50k - I cannot see you doing that unless you were building it with your bare hands

StavrosTheBrave

Doozergirl - i appreciate your concerns but its not a virgin plot, that was included within the quote, as I say, its a unique set of circumstances!

Silvercar - thanks for your sage advice, all very useful in building a case. I fear you are looking at my situation with the tax inspectors hat on! I am basically after someone who has similar experience to me and has avoided the CGT, as I have no doubt that this situation is common. I am not trying to make a profit from this and not pay a tax, all i want to do is move my house from somewhere inconvenient to somewhere I can live and work in. Us first time buyers dont often get this kind of break!

Blacksheep1979

StavrosTheBrave wrote: »

I am not trying to make a profit from this and not pay a tax,

really?

StavrosTheBrave wrote: »

we have had a rough quote to building the house and it came in around £50k.
...
the house will be worth somewhere in the region of £150k - £250k when built and we therefore stand to realise a fairly substantial gain.

So you look like you stand to make up to 200k profit

StavrosTheBrave wrote: »

The problem we face is this - we live 200 miles from the house (in rented accomodation) and both work in our present location.

and the house isn't convenient for you to live in

StavrosTheBrave wrote: »

What I want to understand is how do you satisfy HMRC that you have lived there,

but you're wondering how you can make it look like you live there

StavrosTheBrave wrote: »

how aggresssive are they in assessing your intention to 'buy a property and sell on quickly for a profit'

and how you won't get found out - looks to me like you're a tax cheat (or a wannabe one)