Self-build house - capital gains tax

homelessatxmas

Hello,

We're trying to understand the capital gains tax position if we were to buy some land and build a house. 

We currently live in a flat which we purchased for 500k and spent 200k extending and renovating. It's now worth around 800k. We plan to remortgage and use the money to buy some land for 350k and spend 300k buliding a house which we would then move into as our main residence. We will then likely need to sell the flat to repay the mortgage.

Am I correct in understanding that if we do this there will be no capital gains tax to pay on the new build house and that capital gains tax on the flat would be calculated based on its value at the time at which it stopped being our main residence, i.e. 800k rather than its purchase price (500k)?

We would be getting an accountant if we move forwards but at the moment we're just trying to assess whether the project might be feasible, so any advice gratefully received.

Emmia

To check, you're buying land with existing planning permission for a house, or will you buy the land and then seek planning permission? 

homelessatxmas

Emmia said:

To check, you're buying land with existing planning permission for a house, or will you buy the land and then seek planning permission? 

Hi, thanks for your response. The land we're looking at buying (we haven't offered anything yet) is being sold with existing planning permission for a house. 

Alderbank

You say 'We currently live in a flat...' so there are more than one of you?

If you are married or in a civil partnership you can only have one principal residence, as you have now. Otherwise you can each choose independently which is your principal residence. No problem with each of you choosing a different house.

However from what you have described I don't think there will be any CGT due.

km1500

if your flat is your main and only residence then there is no cgt due on its sale

if you have a 'new' main residence eg land + new build house you will need to nominate which one is main.

You then can pro-rata number of years to calculate cgt when selling - I believe a 9 month overlap.is allowed

homelessatxmas

km1500 said:

if your flat is your main and only residence then there is no cgt due on its sale

if you have a 'new' main residence eg land + new build house you will need to nominate which one is main.

You then can pro-rata number of years to calculate cgt when selling - I believe a 9 month overlap.is allowed

Thank you for your response, just to clarify: Assuming we were to buy the land, move into the house, designate it as our main residence and then sell the flat within 9 months there would be no capital gains to pay on the flat.

If we were to sell it more than 9 months after it no longer became our primary residence then when calculating the pro-rata'd gain can we deduct the money that we spent on renovations, i.e.
-- 800 (assumed sale price) - 500 (purchase price) - 200 (renovation price) = 100k gain

or are we not allowed to make that deduction, i.e. 

-- 800 (assumed sale price) - 500 (purchase price)  = 300k gain?

or is it the value of the flat at the time it stopped being our primary residence?

ProDave

If you own 2 properties simultaneously only one can be your principle residence.  So of you move into the new self build before you sell the flat, then a portion of the ownership of the flat would be subject to CGT but probably a very small portion of it.

35har1old

Alderbank said:

You say 'We currently live in a flat...' so there are more than one of you?

If you are married or in a civil partnership you can only have one principal residence, as you have now. Otherwise you can each choose independently which is your principal residence. No problem with each of you choosing a different house.

However from what you have described I don't think there will be any CGT due.

homelessatxmas said:

km1500 said:

if your flat is your main and only residence then there is no cgt due on its sale

if you have a 'new' main residence eg land + new build house you will need to nominate which one is main.

You then can pro-rata number of years to calculate cgt when selling - I believe a 9 month overlap.is allowed

Thank you for your response, just to clarify: Assuming we were to buy the land, move into the house, designate it as our main residence and then sell the flat within 9 months there would be no capital gains to pay on the flat.

If we were to sell it more than 9 months after it no longer became our primary residence then when calculating the pro-rata'd gain can we deduct the money that we spent on renovations, i.e.
-- 800 (assumed sale price) - 500 (purchase price) - 200 (renovation price) = 100k gain

or are we not allowed to make that deduction, i.e. 

-- 800 (assumed sale price) - 500 (purchase price)  = 300k gain?

or is it the value of the flat at the time it stopped being our primary residence?

If you have the receipts to prove the spend that would be deductible 
.Keep the receipts for the new build and claim the VAT back once complete
SelL house just before completion of new build no CGT to pay

MikeJXE

homelessatxmas said:

Hello,

We're trying to understand the capital gains tax position if we were to buy some land and build a house. 

We currently live in a flat which we purchased for 500k and spent 200k extending and renovating. It's now worth around 800k. We plan to remortgage and use the money to buy some land for 350k and spend 300k buliding a house which we would then move into as our main residence. We will then likely need to sell the flat to repay the mortgage.

Am I correct in understanding that if we do this there will be no capital gains tax to pay on the new build house and that capital gains tax on the flat would be calculated based on its value at the time at which it stopped being our main residence, i.e. 800k rather than its purchase price (500k)?

We would be getting an accountant if we move forwards but at the moment we're just trying to assess whether the project might be feasible, so any advice gratefully received.

As I see it and I have done exactly this but many years ago

Buy the land build the house but not apply for completion certificate until you are 100% sure you will exchange on the flat.

That way the £800 flat sale is not subject to tax and you can claim back all the VAT you spent on the new build