Selling a piece of garden & Capital Gains Tax

looneyleo

Hi.

Someone has offered to buy a piece of our garden for a commercial development and we are not sure if Capital Gains Tax applies? We bought the house in 2001 for £85K and have lived in it all that time. The size of the garden he wants to buy is about 1/6 of the whole plot. Current market value of the whole property is £250k. He wants to buy plot for £175k. We are standard rate tax payers. Thanks for your help.

blackshirtuk

I am by no means an expert and i'm sure one will be around soon to corect me!

As far as i understand it, your Principle Residence (the house you live in) is exempt from cgt.

Also you could get planning permission yourself and then sell the land, it could be worth more. Is the developers offer "subject to PP"

Be careful with exactly what you are signing, some developers want you to sign an "agreement to sell subject to planning", but then do nothing about getting planning. You are then stuck. You would only be able to sell your house minus the land that is subject to the agreement.

racing_blue

Just simply, congratulations, you are one of the winners of the last 10 years. Probably because you bought wisely and now you are looking to sell wisely.

poppysarah

What commercial development does he plan?What is your house worth after you sell this land? And after it's developed?
Do you want to live next to it?
Will the people who you eventually sell your house to want to?

If they get knocked back for commercial development would they then build half a dozen houses there instead or a block of flats?

silvercar

You need your lender's agreement, if you still have a mortgage after this deal.

From hmrc:

What is Private Residence Relief?

When you sell or dispose of your own home you won't have to pay any Capital Gains Tax if you satisfy two conditions. For the whole time you've owned it both the following must apply:
•it's been your only home or main residence
• you have used it as your home and nothing else

You may qualify for this relief if you sell part of the garden without selling your home at the same time.

sunshinetours

Providing the land is within existing boundaries and under a certain size I don't think you'll have any problems with PPR

May be a good idea to consider selling up lock stock and barrell and see what the developer will offer for whole site?

No issues with PPR if you do that and you then wouldn't have to deal with a building site at the end of your garden and possible devaluation of your house with the loss of some garden and possibly overlooking issues etc

Just another option

looneyleo

Thanks for all your advice. There has been a protracted negotiation around this deal and we have considered everything mentioned above and we still think the positives far outweigh the negatives. Mortgage free in one swoop is not to be sniffed at. Plot of land is too small for developer to do anything other than what he has planned (can't disclose just in case!). We have just been super lucky that this is the only piece of land that meets his needs and he is prepared to pay over the odds for it. I have posted a similar thread in the cutting tax forum and someone has kindly provided a very useful link to a hmrc factsheet if anyone else needed similar information. Thanks for your help and I'm keeping my fingers crossed....

irishcol

looneyleo wrote: »

Thanks for all your advice. There has been a protracted negotiation around this deal and we have considered everything mentioned above and we still think the positives far outweigh the negatives. Mortgage free in one swoop is not to be sniffed at. Plot of land is too small for developer to do anything other than what he has planned (can't disclose just in case!). We have just been super lucky that this is the only piece of land that meets his needs and he is prepared to pay over the odds for it. I have posted a similar thread in the cutting tax forum and someone has kindly provided a very useful link to a hmrc factsheet if anyone else needed similar information. Thanks for your help and I'm keeping my fingers crossed....

Fair play to you - that's some good negotiation.

I can't understand why the developer wouldn't want to pay the extra 75k and buy the whole plot? Surely the house and remaining garden would be worth that much.... doesn't seem like the best business decision on their part - but if I was you, I'd snap his hand off!

sunshinetours

Then good luck to you - this really is the golden egg situation when it comes to selling part of your land

Just make sure no excavations or fencing off of the proposed plot takes place before the transfer (sale) - this is an important point and should be contained within the purchase and sale agreement and keep a record (dated photos etc). Reason is its an easy target for HMRC

sunshinetours

irishcol wrote: »

Fair play to you - that's some good negotiation.

I can't understand why the developer wouldn't want to pay the extra 75k and buy the whole plot? Surely the house and remaining garden would be worth that much.... doesn't seem like the best business decision on their part - but if I was you, I'd snap his hand off!

Obviously the house wouldn't be worth £250k with this development in mind and presumably the OP had/has no intention of selling so wasn't on the market

If OP wanted to sell to the devleoper lock stock and barrell as I suggested presumably price would be £350k +

looneyleo

Your posts have been most interesting. Normal rules don't apply to this deal. Our house is very unique, and buyers business opportunity is VERY profitable, proven business model. My piece of land is the only piece of land that will work for him in this area. He has therefore offered way over the odds. Our house was not up for sale... we did agree to sell whole plot initially (for a very significant sum) but couldn't find another property that matched what we currently have and be in a mortgage free position. We therefore went to this plan b. Even with impact of the build on our house value, we are still in serious profit. We have no plans to move so when we do come to sell, we hope the development will be part of the scenery by then. We have even been given involvement in the design, materials to match our house etc... Sounds too good to be true, but it is real and I just hope buyer gets planning permission. He will not be allowed to do anything on my land until money is in the bank and it is all signed sealed and delivered.