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Where Taxpayers and Advisers Meet

cgt on land sale/house build options?

smiley111
Posts:17
Joined:Sun Jan 24, 2010 9:00 pm
cgt on land sale/house build options?

Postby smiley111 » Mon Jan 29, 2018 8:26 pm

Hi

I'd be grateful for any feedback on my situation please.

I have a couple of properties that I have owned for a few years, bought as investment rental properties of which I pay tax on the rental income.

I've been lucky enough to get planning permission to build an attached house at one property and a detached house at another property.

Essentially I have 2 questions, I've tried to research the subject as much as possible and I believe my situation falls into a potential grey area

Option 1 would be to simply sell the 'side garden' of both properties. seemingly fairly straighforward, however my concern would be that HMRC could consider selling the gardens as a trade hence attracting Income Tax and Ni rather than CGT? (CGT would be distinctly more preferable in my situation). would the time between getting the planning approval and the date of sale of the land have any significance? ( I would keep and continue to rent out the existing houses )

Option2 is to build both new houses and rent them out for the foreseeable future, and also keep the existing houses. so i end up with 4 houses all rented out. If i then sold all 4 in 5 yrs time would this simply attract CGT at point of sale ? assume all sold in same tax year and assume house purchase costs of £400k, building costs £300k, all sold for £250k each. so overall cost is £700k, total sales of £1m. so CGT on £300k, I realise i have a CGT exempt amount of c£11k so CGT on £289k?

Any comments / suggestions greatly received

thankyou

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: cgt on land sale/house build options?

Postby AGoodman » Tue Jan 30, 2018 1:07 pm

Option 1 sounds like a capital gain rather than a trade as you have simply bought an asset and then sold part. The sensitive timing would be the period between buying the property and applying for planning permission as, if you bought with the intent of selling part with planning, that could constitute a trading activity. Even then, I'm not sure it would be trading as you have not carried out any development.

option 2 sounds similar - again the sensitivity is timing. The risk is an argument that you bought the properties with the intent to carry out the works but if you hold onto them for some time as an investment, this risk is reduced.


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