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Permitted development on agricultural barn

Good afternoon everyone,

Firstly thank you for any information that i may be given it is very much appreciated.

I hope i am in the right section for my question as i think it could quite possible fall in to a few different categories.

Right, here is my situation!

My fiance's parents kindly suggested around 18 months ago that we convert a barn that they have on their land, since then they have luckily been granted PERMITTED DEVELOPMENT to convert this into a four bedroom dwelling, the barn has around 2.6 acres of land attached to it but is currently used for her dads business (this is also down as part of his business residence) for storing eggs/potatoes etc as this is what he supplies in the local area.

Going forward i believe that the plan is to put the land/barn under our name before we commence with any building work, so to clarify, myself and my partner would be owners of a barn with 2.6 acres of land that has been granted permitted development for a four bedroom dwelling.

So, i would very much like to know, what is the best process for her parents handing over the property to us?

I am assuming that there will be some form of tax to pay on this, obviously we would like to do this in the best way possible so as not to incur any avoidable fee's.

I have read quite a few confusing articles online which suggest there may or may not be CGT or IHT to pay also the suggestion of her parents placing the property in a trust fund under my partners name then folding the trust.

Any clarification would be greatly appreciated, thanks in advance.

Craig.

Replies

  • is this Class Q permitted development? If so, when was it granted - was it 18 months ago or more recently
  • Yes it is class Q as far as i am aware, we were granted permission late December last year.
  • Ok, so a major factor in this is that unlike normal planning permission, class q permission requires you to finish the conversion in 3 years not just start it. Worth thinking about in terms of how you actually achieve what you're looking to do - but also worth thinking about if getting a valuation - because a timeline like that might have a depressing nature on the valuation which woudl be good for your inlaws.

    They will have tax issues - not you - if you intend to live there. If they are gifting you the property then its their CGT and only potential IHT that could be impacted.

    The transfer could be a simple TP1 of the land.
    If you don't intend to live there then there could be additional tax implications as you will be buying a trading asset so any profit might be income tax.

    If you were developing you might think about going back to planning to knock the barn down and build on a new one on the same footprint as a new build can get VAT relief. There is precedent that this ought to be given favourable treatment by the council because you now have an established residential consent for the barn.
  • Yes i did read about the 3 year timescale on the permission letter from the council, hopefully we will be using SIPS panels to speed up the building process, we are also currently in the process of having the barn and land valued.

    what impact would the timescale have on the valuation?

    We are going to be living in the barn once completed, we are very happy with the plans that we have at the minute in terms of converting what is already there as the main steel structure will provide the frame work for the build.

    is there not a discounted VAT rate for Permitted Development?

    thanks, Craig.
  • A need to develop the property in a short period of time might depress value - so from your in-laws position that would help them as they would have a lower CGT liabilty if that could be shown

    In terms of VAT - for a new build you can register and the supply of a new build is zero rated so you can claim back the VAT. I dont think you can do that for a conversion. You might want to get some advice around this. The fact that the planning position is "permitted development" is not relevant for VAT purposes
  • Right i understand, so i would be right in thinking they would have to pay CGT on the current value of the property with permitted development in place?

    Would i be right in thinking that this would be to our disadvantage in terms of using this as capitol against a construction loan?

    So going forward with this i would assume that my first steps are to have the land properly valued, then gifted to myself/ partner.

    I will seek advice in regards to VAT for permitted development properties.

    We have discussed the option of my in-laws starting the building process up to a certain point as they have saving to do so, this would then leave myself/ partner with a partly built house to complete through acquiring a construction loan in order to have a lower mortgage upon completion.

    would you suggest this as a feasible option?
  • CGT would be assessed based on the uplift in value from when they bought it to when they sold it (or gifted it - based on value).

    The lenders would look at the value regardless of the tax position - and you would need to discuss with a broker the basis of the availability of a self build or similar loan.

    They could build the property or lend you the money to build it - with a low / zero interest. There are lots of ways of structuring this. Presumably such a property is going to be worth quite a bit so it probably makes sense for you to think carefully about how to structure all of this before starting it. You could save a lot of tax by structuring this properly - but just make sure if you get an advisor that they consider all taxes ...
  • That makes a great deal of sense,

    i will have a sit down with the family and discuss this tonight, like you say i think it is very wise to seek an advisor to ensure we get the best out of this as a whole.

    Thank you so much you have gave me some great information.

    Regards Craig .
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