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Where Taxpayers and Advisers Meet

CGT on donated garden land

Sydney04
Posts: 6
Joined: Fri Nov 15, 2019 12:29 pm

CGT on donated garden land

Postby Sydney04 » Fri Mar 13, 2020 8:39 am

Hello,

I wonder if anybody is able to offer us some advice.

My wife and I own 2 buy to let properties which we are selling to fund a self build project, both sales are likely to happen in the next tax year. The overall capital gain after the cost of improvements will be about £60k.

One of the improvements we are making to one of the properties before we sell it is to give it some garden from land retained for the self build project. Before the donation of this garden this property had no outside space and so is increasing the value of the property (we would estimate by about £25k).

Are we able to deduct the £25k increase in value that this donated land creates for the property from our overall capital gain?
I.e. Reduce our CGT liability from £60k minus CGT exemption to £35k minus CGT exemption (£60k less £25k value of garden).

If so, would I need a professional (RICS?) to value the property without additional garden so I know the uplift in value created by the donated land?

Cheers
Syd

maths
Posts: 7894
Joined: Wed Aug 06, 2008 3:25 pm

Re: CGT on donated garden land

Postby maths » Fri Mar 13, 2020 2:06 pm

The issue is whether the allocation of part of the land purchased for the self-build to one of the buy to lets may qualify for "enhancement expenditure" treatment ie can its cost be treated as part of the base cost of the buy to let when sold.

I suspect not. For enhancement treatment it is necessary for the cost of the land allocated to the buy to let to satisfy TCGA 1992 s 38(1)(b), namely,
"...the amount of any expenditure wholly and exclusively incurred on the asset by him or on his behalf for the purpose of enhancing the value of the asset...."

The expenditure incurred was not (HMRC may argue) "wholly and exclusively incurred ....." because the purpose of the expenditure was to acquire the land for the purposes of a self-build.

AGoodman
Posts: 1029
Joined: Fri May 16, 2014 3:47 pm

Re: CGT on donated garden land

Postby AGoodman » Fri Mar 13, 2020 4:45 pm

At best, if you could deduct it, you would deduct the acquisition cost to you of acquiring that land - not the value that it adds onto the property you are selling. That may be a proportion of your total cost of buying the development land if you bought it as a single plot.

maths - I am not sure this would have to be an enhancement to the buy to let property (sans garden) - surely this garden land would be part of the asset being sold itself. i.e. building on land would be an enhancement but selling together with another plot of land is the sale of two assets.

maths
Posts: 7894
Joined: Wed Aug 06, 2008 3:25 pm

Re: CGT on donated garden land

Postby maths » Fri Mar 13, 2020 5:15 pm

AG

If I understand you correctly are you saying that two sales take place: the sale of the buy to let and at the same time but separately there is a sale of the bit of land allocated to the buy to let?

Sydney04
Posts: 6
Joined: Fri Nov 15, 2019 12:29 pm

Re: CGT on donated garden land

Postby Sydney04 » Fri Mar 13, 2020 10:47 pm

Thankyou both for your replies.

I should probably have clarified that the garden land we are donating to the BTL is part of the garden we retained when we sold our former PPR last year.

We were lucky enough to gain planning permission whilst living there for 2 plots in the garden which extended to roughly 1/3rd of an acre. So we sold our PPR which retained a decent sized garden and intend to build a new home on one of the plots and give about 100sq metres of this retained land to the adjacent BTL.

So I think what perhaps you are saying AGoodman is that I could deduct the value of that 100sq metres when considered as part of the purchase price we paid for the former PPR back in 2009? i.e. A very very small proportion of £290k!

And maths you are suggesting that there is in fact the sale of 2 seperate assets (the BTL and its newly tacked on garden)?

I hadn't thought of it like that. theoretically I suppose I could sell the garden to the buyer in this tax year for £25k with an option for the buyer to purchase the house in May when searches etc have been completed and so make use of our CGT exemption in both years.

Or is that highly dubious!

maths
Posts: 7894
Joined: Wed Aug 06, 2008 3:25 pm

Re: CGT on donated garden land

Postby maths » Sat Mar 14, 2020 2:11 am

The land allocated to the BTL was part of the land originally acquired which formed the garden of your original private residence which you sold.

On sale of the BTL the base cost of he land allocated to the BTL will simply be added to the original cost of the BTL; presumably the land allocated will be included in the title to the BTL.

My earlier post re "enhancement expenditure" as AGoodman points out was misleading or simply wrong.

bd6759
Posts: 3147
Joined: Sat Feb 01, 2014 3:26 pm

Re: CGT on donated garden land

Postby bd6759 » Sat Mar 14, 2020 12:29 pm

If the land is added to the house, then we have a merged asset. s43 TCGA comes into play, which allows the cost of both.

Sydney04
Posts: 6
Joined: Fri Nov 15, 2019 12:29 pm

Re: CGT on donated garden land

Postby Sydney04 » Tue Mar 17, 2020 11:12 pm

Thanks again for the replies, sorry for the confusion within my posts Maths.

So in applying a value to the garden donated to the BTL, would that be worked out as a proportion of the value of the retained land?

The retained land has been valued at £300k were it to be sold as land with planning permission and roughly 10% of the retained land is to be transferred to the BTL. Would the value therefore be £30k (10% of £300k)?

maths
Posts: 7894
Joined: Wed Aug 06, 2008 3:25 pm

Re: CGT on donated garden land

Postby maths » Wed Mar 18, 2020 12:44 am

For CGT the base cost of the land allocated to the BTL is a proportion of the original cost of the land retained post sale of your PPR.

When the PPR was originally purchased the cost could be allocated between the PPR (eg 100) and the land (200). The cost attributable to the land (200) could then be attributed to that attached to the PPR when sold (30) and the remainder (130) which was retained. Some proportion of the cost of the remainder (130) can then be allocated to that given to the BTL (30).
The figures are purely for illustration.

So it's original costs not current market values as you suggest,

Sydney04
Posts: 6
Joined: Fri Nov 15, 2019 12:29 pm

Re: CGT on donated garden land

Postby Sydney04 » Thu Mar 19, 2020 2:57 pm

Thank you very much for all the replies that's really helpful information


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