lots of problems!

mixedbag

This is a bit of a long winded problem with lots of questions so I hope someone can help.
My mum is wanting to portion off a piece of her land to give to me. The land doesn't have planning permission on it at the minute, so it should be valued as below the capital gains tax band, however, I am wondering if I go ahead and get planning permission myself and build and then sell will I be liable for any taxes?
The other thing I wanted to know is, if I do get planning permission and I already own the land which will be then valued at about 60 thousand, where can I borrow the money for the buils and can it be used as collateral for financing the build?
If there is any infortmation which anyone can offer then please let me know. I'm worried about being able to borrow as I only earn about 14000 pro annum and I'm a single parent so I have no partner or husband to go in with so I don't know if I'll be able to borrow the sort of money I'll need.
Thanks in advance!!

nexus7

If you can split the land (and sort out whatever deeds are necessary) and then your mother "gifts" you the land it shouldn't be a problem in terms of inheritance tax or CGT unless she dies within 7 years of the gift and her estate is worth over the IHT threshold.

As the land is yours from that point on, any planning permission or increase in value from say obtaining it if you weren't going to build and live on it would most likely be vulnerable to CGT as you've just profited.

If however you build to live in it even for a short period of time and it's your main residence then even when you come to sell it in the future the increase in value is all yours to buy another property or downsize or whatever.

Regarding financing, you can get mortgages specifically for self builds. There's a bunch of hoops to jump through and restrictions on the amount they'll lend you but it typically gets paid out either in several stages either in advance or at the end of each stage as it's "signed off." The stages are something like foundations, water tight, first fix, second fix, finishing off etc. just look for self build mortgages and it's all easy to find.

Like any mortgage they will look at your affordability and that will factor in.

If you do have savings you can basically use them to pay the mortgage and if you've got enough to cover some of the building you typically benefit from slightly better mortgage rates if you receive the money after rather than before each stage. I also believe the mortgage payments start as soon as you build so you may wish to budget for that.

If any of this is wrong, I'm sure someone will correct me but I believe that's the general idea of it.

mixedbag

Thank you so much for that reply, it's been a big help. We're not sure how you go about splitting the land though, is this done through a transfer of equity or is there some other way? Do we need to seperate the land first and then transfer it? I may be coming accross as naive but everything I've read so far feels like it's telling me that none of it can be done without massive tax bills or lack of financing. Thanks again for your really quick reply!

nexus7

I'm not familiar with splitting up land, however thinking about it, I don't think it'd hurt if you got planning permission in advance of officially "splitting" the current plot in two as long as you follow the previous example and "gift" the land.

The CGT would only be a problem if you split the land and sold on immediately with or without a house on it. Obviously you'd make more profit if it's a complete house but I'd suggest moving in first should you get that far to avoid CGT entirely.

There are probably risks with splitting land before you even have planning permission not only the fact that if you can't get it, then you've probably paid money to the Land Registry and all you've got a piece of land that you can't do much with other than perhaps recombine it costing more money with your mother's plot again so the value of her property doesn't suffer for no reason.

nexus7

To throw in another issue which may or may not be relevant, if your mother has a mortgage on the property then there's additional "stuff" to be done, e.g. changing the deeds.

They may not let her do it if she doesn't have enough equity as they're not going to let her gift say £60k worth of land away unless she still has enough equity to cover whatever LTV the mortgage is at and that she has enough income even if she's retired to cover any payments!

Lets hope that's not the case because then it's slightly easier for you. Not much but a little!

mixedbag

Thanks again, does that mean I can apply for planning permission before I own the land? Would she still be able to gift the land to me without the planning permission? because my concern is that if the value of the land is above the CGT threshold of 10,600 then she'd be laible for a massive tax bill. Or does it make no difference as long as I live there? Lots of questions, sorry!

themull1

would it not be your mother applying for planning permission, you don't own the land yet.

Yorkie1

Anyone can apply for PP for land they don't own. (Strangely enough!).

nexus7

1. I believe that before you own the land it would have to be your mother who applies for planning permission. (Guess not see post above - I guess that's how people buy plots "subject to planning permission")

2. She could still gift the land without permission. (assuming the mortgage issue isn't a problem)

3. Your mother isn't making a gain so no CGT for her. She would be making a gift. (that shouldn't affect her lifestyle by definition)

The CGT is most likely your problem to sensibly avoid once you've been gifted the plot with or without permission.

You would be liable for CGT if you then sell the land with or without PP or even with a house on if you've not lived in it as your primary residence.

I'm not 100% sure on this but CGT could be applied (whatever % it is) in the worst case:

- The entire plot value with PP

The best case:
- the difference in value between the plot when gifted and the plot with PP on it.

In both cases you would have your CGT limit to absorb some of the gain but I doubt it would cover all of your gains.

Depending on your motives it may even make sense for your mother to build it if she can afford to do so, gift the house + land to you, you move in for a period of time after the transfer and then sell later on. This might be helpful if you can't get a self build mortgage and your mother has spare cash laying around.

planning_officer

Yorkie1 wrote: »

Anyone can apply for PP for land they don't own. (Strangely enough!).

Just to emphasise this - anyone can apply for planning permission on any land. You just have to serve notice on the owner and fill in the owner's details on the application form, but the application itself would be on your name.

Land_Registry

I am unable to offer advice re planning permission or self-build mortgages or tax issues but may be able to help re the 'splitting of land' aspect as mentioned.

Any physical 'splitting of land' is invariably completed as and when the land is sold/transferred by the owner to someone else (built on or not). Think of it in the same terms as a developer building 40 plots on their land - in very simple terms they plan the build, get necessary permissions and then sell the plots individually and each plot sale is then registered at Land Registry by way of a Transfer inc a plan of their plot in relation to the development.

In the circumstances you have explained and as nexus7 correctly points out it is important to establish the current state of play re your mother's property. If she has a mortgage then it is very likely that they will have a say in what can be done as by splitting the property you may well be reducing the value of her property and therefore impacting on the security of their loan.

However, if the transaction is simply between you and your mother and no other interests are registered or affected then splitting the land could be completed at any stage by using forms TP1 (the Transfer) and AP1 (the application). The forms are available online - there are some Explanatory notes also available although created to assist with form TR1 (use the link adjacent to form TR1 on our website which is a few lines below form TP1) which is used to Transfer the whole of a title. These notes will help in completing forms TP1 and AP1. Form TP1 will require a suitable plan to define the land being transferred and guidance on what is required is also provided online

From a land registration perspective the sequence of events prior to any Transfer is of little relevance i.e. build first and then split or vice versa. However reading the other posts suggests that other issues will be important. The key thing to note from a registration perspective is that we register the general boundaries and as such whether it has a building on it or not at the time of Transfer will make little difference to how the registration is completed.