CGT and VAT implications on 2 new house builds

[anty]

I am currently looking at the possibility of demolishing an existing bungalow on our property and building two new detached bungalows. We currently live in the existing, to be demolished, bungalow (no. 35) and aim to move into the new, no. 35A, bungalow when its completed.

As I understand I should be able to zero rate the VAT on the 35A property build as it is a self-build. What would the VAT implications on the rebuild of no. 35 be? Could that be zero rated?

Secondly as I am to ‘move’ from 35 to 35A would the sale of 35 be free of CGT? I understand this would normally be the case, but as 35 would have been rebuilt could this cause issues?
Is there anything else to take into consideration? Thanks!

[section 44]

As I understand I should be able to zero rate the VAT on the 35A property build as it is a self-build. What would the VAT implications on the rebuild of no. 35 be? Could that be zero rated?

Yes.

[bd6759]

Since you will never have lived in new bungalow 35, you won't get PPR relief.

[anty]

Another option would be to build against the existing 35 house, resulting in 2 semi-detached houses. As I am not demolishing 35 and have lived in it, would that give me PPR relief? 35 Would be renovated though and a loft room added.

Also my understanding in this case I could zero rate VAT for the new semi-detached 35A but as I would just be renovating 35 I'll pay full VAT for that?

[Lambs]

A,

You should be eligible for CGT relief in part. Any uplift in value up to the point of development should qualify, if the sale of the building + land as it is now would qualify.

Do bear in mind that your subsequent endeavours to build your second property (presumably for re-sale, as you are hoping to reclaim the VAT) would probably be taxed on a trading basis. But this would be the case regardless of whether or not you were building in your back yard or acquired a fresh plot of land specifically for development.

Regards,

Lambs

[bd6759]

If No35 stays you will get PPR relief on it, but not on the increase in value caused by the rennovation.

[Lambs]

Er, strictly no, it is irrelevant whether or not No.35 stays. The point is that if the land and buildings are eligible for PPR, then they are so eligible up to the point that an ineligible action negates the relief. So, the querist could raze No. 35 and put a funfair on the land. The uplift in value prior to funfairisation would rank for PPR.

The part that continues to be used for eligible occupation (35a?) should remain eligible for PPR.

A, an apportionment exercise may need to be undertaken, to relieve so much of the proceeds/gain as relates to the pre-development stage.

Regards,

Lambs

[anty]

Could anyone help me further on how the sums would work for getting part relief, or doing an apportionment excercise? I have summed up my two options again, adding in approximate values, as it may be easier to illustrate with them included! Thanks

I currently live in an unmodernised 3 bedroom detached bungalow worth about £600 000 (no.35 ) with no loft conversion. Its roughly in the middle of the property so can’t just build another detached house next to it.

As mentioned I have two options:

1) Demolish the bungalow then build two detached bungalows, each 4 bedrooms (going into the loft). I would then move into the new 35a and sell 35. Build cost of £180 000 each house. Sell for £600 000 each

2) Take a side room off the existing bungalow to get some extra land – build 35a on the party wall against 35 and go into the loft on both sides. Ie. Create two semi detached properties, against I’ll sell 35 and move into 35a. Build cost £100 000 for 35 / £180 000 for 35a. Sale price of £575 000 each

As I understand in terms of VAT
Option 1 will be VAT free on both builds. When I sell 35 do I have to pass the VAT onto the buyer?
Option 2 will be VAT free on 35a but not on 35 as that will be just a renovation. I assume I’ll need to split the costs from the builder and claim VAT back on 35a amount

In terms of CGT
Option 1 I understand that I will not be able to get PPR relief at all on 35 when I sell it as I have never lived there. I’ll move into 35a so any subsequent moves I’ll get PPR relief
Option 2 a suggestion has been that I could get part relief – how would that work? Ie that my original 35 (ie the whole property) is £600 000. If I then sell semi-detached 35 for £575 000 its not in HMRC’s favour.

I have heard of homeowners who have lived in a detached house with excess land, partitioned off a section of the land and built a property that they subsequently moved into. They have claimed PPR relief on the full amount, as if they have just sold up and moved home, so I assume this is legal. In my case I can’t do that because my house in the middle of the property.

Any advice will be much appreciated! Or a reference for a property tax consultant will also be apprecaited!

Regards

Anthony

[section 44]

As I understand in terms of VAT
Option 1 will be VAT free on both builds. When I sell 35 do I have to pass the VAT onto the buyer?

No

Option 2 will be VAT free on 35a but not on 35 as that will be just a renovation. I assume I’ll need to split the costs from the builder and claim VAT back on 35a amount

If the builder issues invoices covering both properties then an apportionment would be necessary. The builder's works to 35a should be zero-rated so no VAT to claim back. Clearly the DIY scheme would not be in point as this would be a business activity.