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Where Taxpayers and Advisers Meet

Carving out the new title before building main residence

LukHar
Posts:2
Joined:Thu Mar 22, 2018 5:44 pm
Carving out the new title before building main residence

Postby LukHar » Thu Mar 22, 2018 6:07 pm

The scenario is as follows;

A retiring couple live in a high value property set in 9 acres, with a large mortgage and no repayment vehicle which needs to be paid off this year.

They intend to build a new property on one acre of that land and move into it and sell the existing property.

To do this they will need financing (most likely Equity Release, surprisingly). To get financing, they will need to secure against the existing property and that means that if they build the new house first and THEN carve out the title for the new property, the financing company with a charge on the property will very likely block them being able to do so.

That suggests that they should hive out the new plot first and then build on it. The worry there is that they would have a large Capital Gain on the new property since it's a difference title to their existing property. Or maybe they won't?

Of course to be safe, they'll need planning permission to actually hive off the new building BEFORE they start doing anything, to make sure they don't end up with 2 houses on one title that the council won't let them split. But then where does this leave them with CGT

So I suppose ultimately, the question is, how do we do this without getting clobbered for the CGT on the new build? it doesn't seem to fair to pay CGT on a self build main residence.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Carving out the new title before building main residence

Postby maths » Thu Mar 22, 2018 10:18 pm

Th question arises as to whether on hiving of the land upon which the new property is to be built gives rise to a CGT charge.

If the land qualifies for private residence relief then no CGT. If it doesn't then that land will have a base cost (date of original acquisition) and a market value when separated under its own title and any gain will fall subject to CGT.

LukHar
Posts:2
Joined:Thu Mar 22, 2018 5:44 pm

Re: Carving out the new title before building main residence

Postby LukHar » Thu Mar 22, 2018 10:58 pm

Thank you. So;

1) what might determine whether it qualified for main residence relief or not? Why would it not?

2) are you saying that if there was a CGT bill, then the gain would be some sort of percentage of the original house purchase measured against the value of the land at the point of hiving it off? Because that may not be so bad. But if you’re saying it could be the gain of the final value of new built house, over the market value of the hived land... well than would be unpleasant.

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Carving out the new title before building main residence

Postby bd6759 » Fri Mar 23, 2018 1:07 am

CGT is paid on disposals. Putting land on different titles is not a disposal

You have 9 acres. You propose selling 8 acres. That is unlikely to qualify in full for PPR relief. Generally anything above 0.5 hectares (about 1.24 acres) does not qualify unless the land is neccesary for proper enjoyment of the property. You will need a RICS qualified valuer to determine that.

The land you hive off will become your PPR and should be exempt when you sell it.


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