Capital gains tax on self build property

[Lee W]

We purchased a plot of land (1/4 acre) to carry out a self-build back in November 2000. We obtained PP for two detached houses and moved onto the site in a caravan on 2 Jan 02. We have almost completed building the first property but have yet to start the second one. It was always our intention to move into the first property and then decide whether to sell the other half off or develop it ourselves. Circumstances have changed and my wife is extremely fed up at work! and has found a property where she could run a business from home. If we purchased the new property and moved into it as our main home, can we then sell the self-build property in about six months (this is about how long it would take to complete) without attracting CGT? Although technically we have never lived in the property, we have lived in a caravan on site for nearly two years and paid council tax for the same period. If we do have to pay CGT is there anyway it can be reduced? for example:- rent the property out for a number of years before selling?

Any advise would be very much appreciated.

Many thanks,

Lee

[Nigel Lord]

Lee

You will certainly be liable to pay either CGT or income tax on the gain on any property that you NEVER live in. If you let it out this will only defer the crystalisation of the gain until it is sold.

If the Inspector determined that the development of the site was a trade then you would be liable to income tax rather then CGT (a worse scenario).

You may therefore want to reconsider the whole strategy, to make it tax efficient. I would certainly recommend that you consider living ion one of the properties for a period of time (a few months) as this should allow you to qualify for some Principal Private Residence (PPR) Relief and Residential Lettings Relief (if let), however, even this could be restricted if the Inspector determined that you developed the proeprty with a view to realising a gain, rather than as a main residence.

There are a number of methods of mitigating or deferring your exposure dependent on your circumstances, and you should take qualified professional advice prior to undertaking any other actions that may worsten your position.

My firm specialises in this area of taxation. If you would like us to assist you further we would be delighted to do so.

Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852
mail@lordassociates.co.uk