Tax implication on selling part of garden?

by Readers Question

10:12 AM, 28th November 2017
About 11 months ago

Tax implication on selling part of garden?

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Tax implication on selling part of garden?

I have one house where I’ve lived for 3 years and 5 months, I am about to move out and let it out. This house has a large garden and has access to main road, I would like to obtain an outline planning permission for this part of garden and then selling the plot off to a builder, then let it out the existing house about 3 – 4 years, then sell the existing house.

The house is in South East and if the planning permission for the land is successfully obtained and sold, it is likely to produce a 6 figures profit. The plot will be “The permitted area”, as it is less than 800 sqm – including the site of the dwelling. I understand if I am selling the land now, the Principle Private Residence relief will apply, no tax to pay.

My intention was to apply for the planning permission then sell the land asap, but the planning application does take some time, so I am thinking about letting it out first, then apply for the planning permission while letting. I will let the prospective tenant know my intention, as I like to be open and honest with the tenant. But because the incoming new tenant does not like to live near building site, while the construction work is at the back of garden I am thinking about delaying selling off this part of land for about 2 years to ensure no construction work during the 2 years tenancy.

My questions are as follows:

(1) If I let out the existing house for 2 years, then sell the part of garden with planning permission. Then wait for another 2 years, then sell the main house. What are the tax implications?

(2) What is best way to avoid paying Capital gain tax on profit of selling the land, while letting out existing house?

(3) What is best way to handle the new tenant concern regarding not wanting to live near a building site?

(4) Should I just try to get planning permission then sell it, rather than letting out? Is this the best way to get maximum return?

Thank you very much in advance.

Best regards

Tim



Comments

Neil Patterson

10:19 AM, 28th November 2017
About 11 months ago

You are correct about not paying CGT if you sell the land while you are living in the property. See .Gov >> https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2017--2

"How the relief works

If you dispose of:

a dwelling house (which can include a house, flat, houseboat or fixed caravan) which is your home
part of a dwelling house which is your home
part of the garden attached to your home you would normally have to pay Capital Gains Tax on any gain you make

However, you’ll be entitled to full relief where all the following conditions are met:

the ‘dwelling house’ has been your ‘only’ or ‘main residence’ throughout your ‘period of ownership’
you’ve not been absent, other than for an allowed period of absence or because you’ve been living in ‘job-related accommodation’, during your ‘period of ownership’
the ‘garden or grounds’ including the buildings on them are not greater than the ‘permitted area’
no part of your home has been used exclusively for business purposes during your period of ownership

The ‘Definition of terms’ are explained below. If you meet all of these conditions, you won’t have to pay Capital Gains Tax on the disposal. You won’t need to complete the Capital Gains Tax summary pages of your tax return if you’ve made no other disposals or chargeable gains and don’t wish to make any capital gains claims or elections. (See page TRG 5 of the tax return guide)

If not all of the conditions are met, you may still get partial relief under certain circumstances and you’ll need to complete the Capital Gains Tax summary pages of your tax return. This helpsheet describes the circumstances when you may get relief and explains how much relief you can deduct from any gain to calculate the chargeable gain.

Even if you meet all of these conditions, you won’t get Private Residence Relief if:

you dispose of all or part of your garden after you’ve disposed of your home
you acquire a dwelling house and/or spend money on it in order to realise a gain on its disposal

For example, you may have bought the house to sell it quickly at a profit or, if you were a tenant, you may have bought out the freehold in order to increase your profit on sale. In this case, you’ll need to provide details on your tax return."

terry sullivan

11:15 AM, 28th November 2017
About 11 months ago

do not move out until you have completed all transactions!"

Tim Tolhurst

11:57 AM, 28th November 2017
About 11 months ago

Reply to the comment left by terry sullivan at 28/11/2017 - 11:15
I understand normally Principle Private Residence Relief (PPR) and Lettings Relief will apply and cover it, for period of mixed of main residence and letting. But I am confused as there is sale of land is happen during of letting. Does the principle still the same, and PPR and letting relief still apply same way?

terry sullivan

12:03 PM, 28th November 2017
About 11 months ago

Reply to the comment left by Tim Tolhurst at 28/11/2017 - 11:57
sorry but i do not know

Freda Blogs

13:32 PM, 28th November 2017
About 11 months ago

I strongly recommend you do not let the plot with the house and remaining garden, ideally fence it off or otherwise demarcate it and make clear in the AST that it is not included. If you don't, it will form part of the 'demise' of the tenancy and you will need to obtain vacant possession when you want to sell. It's an avoidable complication and/or any tenant could make life difficult or hold you to ransom.

Alan Bromley

16:06 PM, 28th November 2017
About 11 months ago

Does anyone know whether this applies to land which is part of the land registry title to a house but which is pasture? (Yes, I know it's going to be difficult to get planning permission.) We have two fields that came with the house.

Neil Harvey

20:33 PM, 28th November 2017
About 11 months ago

Also be careful about "fencing off" the plot whilst it your PPR. This can stop you claiming PPR relief i believe

Take processional advice from a good property accountant is my best advice


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