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If you build a house in your own garden do you have to pay capital gains on it when you sell.
many thanks.
many thanks.
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The answer is 'it depends', but it is reasonably straightforward to structure the transaction to avoid this. The key, as I'm sure you know, is to ensure the whole plot remains your principal private residence, on which no CGT is payable.
To answer you question fully, please tell me:
How big the overall plot currently is (there are problems if the whole plot is larger than a certain size - think it is 0.3 hectares - will check and get back to you).
Is it your intention to build the new house, move from the existing house to the new one then sell the old one? - or are you intending to profit from the sale of part of your existing garden as a building plot for a third-party?
To answer you question fully, please tell me:
How big the overall plot currently is (there are problems if the whole plot is larger than a certain size - think it is 0.3 hectares - will check and get back to you).
Is it your intention to build the new house, move from the existing house to the new one then sell the old one? - or are you intending to profit from the sale of part of your existing garden as a building plot for a third-party?
As mentioned above, there is no CGT to pay on value uplifts on your principle private residence.
One way to do what you desire is to apply for and acquire Outline Planning Consent for the plot in the garden and sell the plot with planning permission. That way, the 'value enhancement' has occurred directly to your principle private residence and there is no CGT to pay. This may be an attractive solution, because most of the value enhancement will come from uplift in the value of the new plot with its planning consent (and not from the physical building you might add). The downside is that you have less direct control over what house eventually gets built there.
If you are taking it to that next step, you have to live in the new house at some point for a period of time. The revenue are not specific about this but they are wise to serial self-builders. You would have to develop the new property, sell the original one and move into the new one for perhaps a minimum of six months. What is important is that you give out no intentions that the plan was ever anything other than to develop the new house and move into it. So correspondence with mortgage companies etc. should reflect that as the plan. If, after a period of time, plans change that is fine. The revenue will not come after you for CGT on either properties.
If your current plot is bigger than 0.5 hectares (2.5 acres) there may well be a problem with the above address.
If you want to get into the technical side of things yourself the HMRC manuals are here. Happy reading.
http://www.hmrc.gov.uk/manuals/cg4manual/CG64200c.htm
One way to do what you desire is to apply for and acquire Outline Planning Consent for the plot in the garden and sell the plot with planning permission. That way, the 'value enhancement' has occurred directly to your principle private residence and there is no CGT to pay. This may be an attractive solution, because most of the value enhancement will come from uplift in the value of the new plot with its planning consent (and not from the physical building you might add). The downside is that you have less direct control over what house eventually gets built there.
If you are taking it to that next step, you have to live in the new house at some point for a period of time. The revenue are not specific about this but they are wise to serial self-builders. You would have to develop the new property, sell the original one and move into the new one for perhaps a minimum of six months. What is important is that you give out no intentions that the plan was ever anything other than to develop the new house and move into it. So correspondence with mortgage companies etc. should reflect that as the plan. If, after a period of time, plans change that is fine. The revenue will not come after you for CGT on either properties.
If your current plot is bigger than 0.5 hectares (2.5 acres) there may well be a problem with the above address.
If you want to get into the technical side of things yourself the HMRC manuals are here. Happy reading.
http://www.hmrc.gov.uk/manuals/cg4manual/CG64200c.htm
Just to be clear (because with all due respect, I'm not sure bm has quite made it utterly so), what you CANNOT do is this:
You cannot build a second house within your present garden, then sell both properties at once (or just the second one) without having lived in the second one and not expect to pay Capital Gains Tax.
And you cannot (despite the attempts of some MP's to imply otherwise) have two residences at the same time. You live in a house. You cannot live in two houses. And only the house that you live in is free from CGT when you sell it (although there is a grace period allowing a previous main residence to lie empty for a period when you leave it before you sell it).
You cannot build a second house within your present garden, then sell both properties at once (or just the second one) without having lived in the second one and not expect to pay Capital Gains Tax.
And you cannot (despite the attempts of some MP's to imply otherwise) have two residences at the same time. You live in a house. You cannot live in two houses. And only the house that you live in is free from CGT when you sell it (although there is a grace period allowing a previous main residence to lie empty for a period when you leave it before you sell it).
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