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Where Taxpayers and Advisers Meet

Building project abandoned - CGT question!

pointy
Posts:4
Joined:Mon Jun 08, 2015 1:58 pm
Building project abandoned - CGT question!

Postby pointy » Mon Jun 08, 2015 2:11 pm

This is a bit of a sorry tale but here are the basics:

We sold our house in 2009 and moved to a different area, where we bought a plot to build a house for ourselves to live in and moved into rented accommodation nearby.

We commissioned an architect to come up with plans to demolish the derelict property on the site and build a new one but we then discovered we were £200k short. We ended up having to pay the architects a large fee, and walked away from that design. We then went down a different route with another designer and got permission for a different house. Even though I have inherited some money (probate shortly to be completed) we are not quite going to have enough to do this, so we have put the property on the market and have agreed a sale. The property has of course had the benefit of our time and planning permissions, and we have sold it for £190k more than we paid for it. Costs for our rented accomm have been £139k plus associated design / architect / technical report / planning fees of approx £55k.

This isn't a great time for us and now I am really concerned that we are about to get stung for Capital Gains Tax. I hope not, obviously. We are self-employed and if we had intended to do this commercially we would of course have claimed tax relief on the expenses to do with this. The intention though was to move in for ourselves, and any question of having to abandon it and pay CGT wasn't part of our plans.

Could anyone advise on whether we are OK to complete the sale or whether there is anything we need to do?

taxmenot
Posts:8
Joined:Wed Jun 03, 2015 1:54 pm

Re: Building project abandoned - CGT question!

Postby taxmenot » Mon Jun 08, 2015 5:45 pm

Hi,

I am sorry to be the bearer of bad news but you are looking at CGT on the gain.

You will not obtain relief for the temporary rented accomodation but will get it for the planning permission (as enhancement cost). You will of course have the annual exemption for £11k.

You may be able to (but this may be very difficult to argue) get "principal private relief" on the gain. Though you did not occupy the completed property there are some extra statutory concessions in the HMRC manuals which I have put below:

Dwelling house being built on land

An individual may acquire land and have a dwelling house built on it. In these circumstances you can allow relief for the period between the acquisition of the land and the physical occupation of the dwelling house provided that

the period does not exceed 12 months , or longer if there are good reasons for exceptional delay

and

at the end of the period the new dwelling house becomes its owner’s only or main residence.

As long as you have good reasons for exceptional delay and given that it was your only residence, the full gain will be relieved.

Hope the above helps.

KRs

pointy
Posts:4
Joined:Mon Jun 08, 2015 1:58 pm

Re: Building project abandoned - CGT question!

Postby pointy » Mon Jun 08, 2015 9:28 pm

Hmm, taxmenot, thank you for that (although not entirely what I would have liked to have heard).

It is not such a great situation for us. We are not even building a house - the land is more or less as we purchased it apart from having the various permissions we got. So not sounding hopeful. The intention was to sell it and then get back into the property market by buying a ready-made house!

The various permissions will have been instrumental in pushing up the value of the land - so I'm guessing the fees of c£55k will all be allowable as they were all connected with that. Plus I guess from what you say, another £55k from five years of annual allowance.

We are currently taking legal action against the original architect but that's not really connected with this case, I guess.

pointy
Posts:4
Joined:Mon Jun 08, 2015 1:58 pm

Re: Building project abandoned - CGT question!

Postby pointy » Mon Jun 08, 2015 9:30 pm

Sorry - should add, the intention IS to sell it and get back into the property market. We took that decision in October 2014 after finding the second build design wouldn't be feasible either. The original intention of course was never to have to sell it hence we never even considered this would be an issue. It was only when our conveyancing solicitor mentioned it that it even occurred to us it might be an issue. :-(

bd6759
Posts:3518
Joined:Sat Feb 01, 2014 3:26 pm

Re: Building project abandoned - CGT question!

Postby bd6759 » Mon Jun 08, 2015 9:54 pm

Just a quick point. There is only one annual allowance. The allowance applies against gains arising a year, so there is is only one £11K.

section 44
Posts:4468
Joined:Thu Oct 30, 2008 12:47 pm

Re: Building project abandoned - CGT question!

Postby section 44 » Tue Jun 09, 2015 10:29 am

There is only one annual allowance
although that is one annual allowance per seller:
we bought

pointy
Posts:4
Joined:Mon Jun 08, 2015 1:58 pm

Re: Building project abandoned - CGT question!

Postby pointy » Tue Jun 09, 2015 10:38 am

Hi all,

That's interesting. As my wife and I are joint owners (although as self-employed people we are also a partnership) does that mean that as joint owners we each have a CGT allowance? I'm assuming this allowance is basically a threshold before anything is payable so if I understand right we would as a couple be able to gain £22k plus whatever other allowable expenses have gone into the property?

section 44
Posts:4468
Joined:Thu Oct 30, 2008 12:47 pm

Re: Building project abandoned - CGT question!

Postby section 44 » Tue Jun 09, 2015 10:53 am

yes


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