Selling Part of Garden as a Building Plot

sinboots

House purchased as renovation plot eight years ago, has large garden area attached to main house plot but fenced and walled off as a separate area. Outline planning permission now granted for the garden area and intend to sell it. House has interest only mortgage. Query is, what will Building Society require when the building plot sells? Clear that deeds require splitting but will they be able to demand a share of the proceeds from sale of the land to offset against mortgage? Is there any protocol for this situation?

DTDfanBoy

They'll be able to stop the sale unless you consult with them, the whole property is currently collateral for the mortgage you cant just sell portions of it off.

antrobus

sinboots wrote: »

House purchased as renovation plot eight years ago, has large garden area attached to main house plot but fenced and walled off as a separate area. Outline planning permission now granted for the garden area and intend to sell it. House has interest only mortgage. Query is, what will Building Society require when the building plot sells? Clear that deeds require splitting but will they be able to demand a share of the proceeds from sale of the land to offset against mortgage? Is there any protocol for this situation?

Speak to your Building Society. For one thing, you won't be able to 'split the deeds' and sell the plot without their permission.

TBagpuss

whether they require you to use any of the sale proceeds to reduce the mortgage is likely to depend on what the house will be worth with the smaller garden and how much is outstanding on the mortgage.

If they treat this as a remortgage then you will also need to satisfy their affordablity criteria.

Depending on your current mortgage deal, of course, it may be worth considering whether you want to remortgage anyway.

Annie1960

You will also need to talk to HMRC as you may need to pay CGT.

sinboots

House is also to be sold, but selling garden plot first should avoid CGT liability - as house was renovation project - full modernisation - now complete and eight years on from purchase, value now - without the building plot - has been placed substantially higher than the original LTV figure. Thanks for the advice.

eddddy

sinboots wrote: »

House is also to be sold, but selling garden plot first should avoid CGT liability - as house was renovation project - full modernisation - now complete and eight years on from purchase, value now - without the building plot - has been placed substantially higher than the original LTV figure. Thanks for the advice.

It sounds like you understand the constraints.

One risk is that your mortgage lender will send out a valuer, who may be from a large national firm, with poor local knowledge. So the valuation could be way out (usually very low). So you might want to prepare some 'evidence' to show the valuer on the day.


Another risk is that some lenders try to use this situation as an excuse to get you to repay a chunk of your mortgage (even though you would still be within the LTV limit). For example, your mortgage is 'interest only', and your lender may be wanting to reduce their 'interest only' exposure.


And assuming the house is your primary residence, there will be no CGT liability.

Hoploz

I thought if you sell the garden plot first this would be subject to cgt but if you sell it together with the house then it is your main residence and as such there is no cgt.

Doozergirl

Hoploz wrote: »

I thought if you sell the garden plot first this would be subject to cgt but if you sell it together with the house then it is your main residence and as such there is no cgt.

Because you sell the land first, it's a still a part of the main residence. You can sell it off in tranches.

eddddy

Hoploz wrote: »

I thought if you sell the garden plot first this would be subject to cgt but if you sell it together with the house then it is your main residence and as such there is no cgt.

No, you can sell part of your garden without CGT liability - as long as the total size of your garden is less than 0.5 hectares (or 1.2 acres).


But there are some other rules to be aware of:

The land has to be used as part of the garden or grounds of the residence.

And if you fence off the piece of land and/or start construction - it's no longer part of the garden, so the CGT liability starts.

Annie1960

eddddy wrote: »

No, you can sell part of your garden without CGT liability - as long as the total size of your garden is less than 0.5 hectares (or 1.2 acres).


But there are some other rules to be aware of:

The land has to be used as part of the garden or grounds of the residence.

And if you fence off the piece of land and/or start construction - it's no longer part of the garden, so the CGT liability starts.

This is correct. If the land is sold for development then CGT applies. The OP should speak to HMRC about this so they are clear about it before they sell. My understanding is that construction does not need to have been started, the land just needs to be ear-marked for development (such as gaining planning consent), but the rules change all the time.

The only people who can give a definitive answer on this are HMRC.