CGT question re: sale of building plot/garden

ellives

Hello

I have plans to build a property in my garden - two scenarios:

1. Sell part of my garden as a building plot. I plan to staying living in the property and I intend to sell the plot with PP.

To be clear, the plot is less than half a hectare and is currently used as a garden and no work has been done.

I'm confused as to whether I would be liable for CGT or not? I was under the impression that due to the above conditions, I would benefit from private residence relief and avoid CGT; however, I have read that if the plot has PP, I may be liable?

Could someone please put me straight?

2. Build the property myself and then sell it. What are my tax liabilities?

Thanks, in advance.

pjclar02

Hello there


1) If you sell a plot of land with planning permission, this will be covered by principle private residence relief provided the size of the garden falls within the maximum limit and the garden is used and enjoyed as such up until the point of disposal.


2) If you build and sell a property yourself, this is likely to amount to trading income and be liable to income tax at your marginal rate

antrobus

pjclar02 wrote: »

.....2) If you build and sell a property yourself, this is likely to amount to trading income and be liable to income tax at your marginal rate

Well yes, but what you're supposed to do is;

1. Build the new property and move into it.
2. Sell the old property. PRR applies.
3. Wait a bit and then sell the new property. PRR again applies.

Trebles all round!

melanzana

antrobus wrote: »

Well yes, but what you're supposed to do is;

1. Build the new property and move into it.
2. Sell the old property. PRR applies.
3. Wait a bit and then sell the new property. PRR again applies.

Trebles all round!

Yes perfect!

But I think you would need to sell first property before moving in to second to avail of PPR relief. Could be wrong about that...and often am!

jimmo

ellives wrote: »

I have read that if the plot has PP, I may be liable?

Could someone please put me straight?

2. Build the property myself and then sell it. What are my tax liabilities?

Thanks, in advance.

Don’t know where you read that but I can only imagine that the author was thinking about the situation where private residence relief is restricted because of “expenditure on the dwelling house wholly or partly for the purpose of realising a gain from its disposal.


http://www.hmrc.gov.uk/manuals/cgmanual/CG65200.htm


However, HMRC’s own staff instructions specifically exclude planning permission from that.


http://www.hmrc.gov.uk/manuals/cgmanual/cg65243.htm


You can therefore sell part of your garden as a building plot tax free but one thing to watch out for is not to fence off the part you are selling, at least until contracts have been exchanged.


http://www.hmrc.gov.uk/manuals/cgmanual/CG64377.htm




If you decide to build the new property yourself that will be an adventure in the nature of trade and you will be deemed to have sold the plot to your property developing business at market value. Just like the above your deemed sale at market value will create an exempt capital gain and your property developing business will have a deemed purchase cost for the land.


http://www.hmrc.gov.uk/manuals/bimmanual/BIM60060.htm

ellives

Thank you all for your responses - I truly appreciate that you are bothered enough to respond.

Jimmo - would you be kind enough to have another go at explaining the third point you made - might be the G&Ts I've enjoyed this evening, but I don't get it - am I going to pay some tax?

Perhaps related to this last point, if I was to sell the plot to a company that I owned 50/50 with my builder pal and this company then built and sold the property, what would be the tax position then?

....if I'm talking nonsense I'll blame the booze!

00ec25

ellives wrote: »

have another go at explaining the third point you made - might be the G&Ts I've enjoyed this evening, but I don't get it - am I going to pay some tax?

in this option your intention is to develop the plot yourself. Such activity is deemed to be property development trading and as such falls within income tax not CGT. However, there is a middle step where the plot of land is (notionally) transferred from you the resident to you the property developer so that you the developer can then undertake the trading activity of building the new house

therefore, notionally, you the resident dispose of ("sell") the plot free of CGT because you are the resident and can claim full exemption under private residence relief

you the developer notionally acquire ("buy") the land at its open market value as a building plot. No money changes hands between you the resident and you the developer but the purpose of this transaction was to establish the acquisition cost price of the land for you the developer

You the developer then build the new house and eventually sell it to someone else. At that point you the developer will pay income tax on the profit you have made. The profit being sales price minus cost of building minus acquisition cost of the plot

ellives wrote: »

Perhaps related to this last point, if I was to sell the plot to a company that I owned 50/50 with my builder pal and this company then built and sold the property, what would be the tax position then?

you the resident would pay no CGT as it is an exempt sale of a plot of land - that fact it is sold to a company in which you have an interest is irrelevant

when the company then builds the property and sells it the company will incur corporation tax on the profit it makes. If you and you builder mate then withdraw any of the profit from the company you as an individual person will be exposed to tax depending on how you withdraw the money. if you do it as a dividend then whether you actually pay any additional tax depends on whether your total income (including the dividend) for that tax year pushes you into the higher rate (40%) bracket, if it does you would pay an additional 22.5% income tax on the value of the dividend

ellives

Blinkin''eck there's some great minds around at 3 in the morning!

Thanks, I'm getting the picture.