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Capital Gains Tax on a house built in our garden!
jac29
Posts: 85 Forumite
in Cutting tax
Hi, This is my first post so i don't really know what/how to do this right or if anyone can offer any advice but i thought it was worth a try. ...
Here goes.....
Having a house built in our garden (it's a biggish one) for which we took out a second mortgage on our home. Hubby pays 40% tax (works mega hours) and i currently pay nil (housewife/mother of 3). This was supposed to be our one chance to finally make some money and help my mum who lives in rented property but....feel like things not going as planned. Housing market gone down and found out about capital gains tax! Oh my god!!
Knew we'd have to pay it but been told it will be charged at 40% due to hubbys work. Thinking about renting new build but worried about having huge mortgage around our necks plus whole idea to make life easier/reduce hubbys hours/help my mum live locally in a small house. Any advice about how we can pay the minimum capital gains tax or better still not have to pay any? Thought about moving into the house and selling our home instead but really don't want to do that as spent three years making it habitable and none of us want to leave it. HELP!!
Here goes.....
Having a house built in our garden (it's a biggish one) for which we took out a second mortgage on our home. Hubby pays 40% tax (works mega hours) and i currently pay nil (housewife/mother of 3). This was supposed to be our one chance to finally make some money and help my mum who lives in rented property but....feel like things not going as planned. Housing market gone down and found out about capital gains tax! Oh my god!!
Knew we'd have to pay it but been told it will be charged at 40% due to hubbys work. Thinking about renting new build but worried about having huge mortgage around our necks plus whole idea to make life easier/reduce hubbys hours/help my mum live locally in a small house. Any advice about how we can pay the minimum capital gains tax or better still not have to pay any? Thought about moving into the house and selling our home instead but really don't want to do that as spent three years making it habitable and none of us want to leave it. HELP!!
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Comments
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If you move into the new house, you can sell the old one and won't be liable for any CGT. Surely you want to live in the nice, shiny new one??!!0
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If the house is in joint names you will each have a CGT allowance. Remember that CGT is paid on the gain not the total selling price, so you will never lose out, just make less money than you originally thought.
You should take advice before the split of the garden to form the new house area to maximise the starting point of the CGT calculation. WHether you partition the land before the build or after can determine the tax treatment. See page 7 of this:
http://www.hmrc.gov.uk/helpsheets/hs283.pdfI'm a Forum Ambassador on the housing, mortgages & student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.0 -
Some good news! The 40% CGT rate has been abolished and it would be 18% for you now. See government website.0
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Hubby spoke to someone today and discovered the 18% came in this April. Phew! Was beginning to wonder why we were putting ourselves through this. Don't want to live in it ourselves as not big enough for our brood plus bought our house in a right state and been through hell (it's a long, long story) to get to a stage where it is looking like a home. It's really old, full of character and a fantastic house now it's nearly done so we really didn't want to move out.
Thanks to those who have offered advice0 -
Why CGT? Capital Gains suggests an increase in the value of an asset; what you have done is created an asset the profit on which is likely to be taxed as income.0
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Why CGT? Capital Gains suggests an increase in the value of an asset; what you have done is created an asset the profit on which is likely to be taxed as income.
Only if they are in the building trade; this seems more like an investment especially if they have held the land for a long time first.0 -
I don't agree; this is an adventure in the nature of trade. They may have held the land for some time but the property has been built to make a profit.Only if they are in the building trade; this seems more like an investment especially if they have held the land for a long time first.0 -
:think: Been in touch with Inland Revenue and they have clarified that the following applies: Valuation of land/build expenses/solicitors costs etc deducted from proceeds of sale. The remaining amount is liable for capital gains tax at 18% after the capital gains allowance for both of us has been deducted as we both own the land/property.0
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I'm with Jimmo and Johnllew - this isn't a capital gain, it's trading.
To avoid income tax (potentially at 40%) and class 2 & class 4 NIC, you should either move into it as your home, or rent it out, either way, you convert it into an "asset" ultimately chargeable to capital gains tax when you sell.
Advice received over the phone from an HMRC call centre is worthless - at the very least you need to know their name and location, and you need their advice in writing if you hope to rely on it later.0 -
If the scenario changed so that jac29 built a home in her garden with the intention of living in it. Then at a later decided that instead of moving in they would remain where they were and sell the new property. Would that make a difference to the type of tax due?
There will be a time after the house is completed and before it is sold when jac29 will own both homes. At that point could jac29 make an election that the new home is to be her PPR? Then, when the sale is concluded, the PPR returns to being her original home. The new home then falls within the rules of PPR for the whole time it exists as a home.
Just thinking as I type, based on the reasons others have psoted on why it is income tax and trying to think of ways to manouvre it back towards CGT.I'm a Forum Ambassador on the housing, mortgages & student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.0
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