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Where Taxpayers and Advisers Meet
Building in your garden
26/06/2019, by Jennifer Adams, Tax Articles - Capital Gains Tax, CGT
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Demand for new homes has never been greater and many homeowners with large gardens are finding that they can release capital by selling part of their garden to property developers or even build the property themselves. Whether the project is viable will be dependent on a number of factors, not least one of which is the tax position on the sale of the land 

Capital Gains Tax (CGT) will be the usual tax concern under such a project but in certain circumstances income tax may also be charged, as well as there being the potential of stamp duty land tax, VAT, and even inheritance tax complications. 

Most owner occupiers are not liable to pay CGT on the sale of their main residence asany gain is covered by s 222 to s 226 TCGA 1992 “Relief on disposal of private residence". However, the relief is not automatic and there are restrictions not least that the sale must be of adwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, his only or main residence (s222(1a)). Also,the sale must be ofland which he has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area” (s222(1b)). 

Unfortunately there is no legal definition as to what constitutes a “garden"or what is meant by “enjoyment” of the residence.HMRC’s guidance HS 283 Private Residence Relief” attempts to give some advice such that in their opinion a “garden” should serve “chiefly for ornament or recreation” i.e.that the area must be dedicated to plants or fruits and vegetables for domestic use only 

If the land can be deemed to be a "garden" then there is a further restriction that the wholearea (inclusive of the site of the main residence) must be less than0.5 of a hectare (i.e.1.23 acres). The area may be greater if HMRC agree that alarger area has been required for the reasonable "enjoyment" of the residence. The question is whether the house requires the land rather than whether the owner requires the land. In any such decision the role of the District Valuer is crucial.  

Practical point 

To succeed in a claim, it needs to be shown that the area has been used as an integral part of the garden. Evidence to support the claim should be presented (e.g. photographs of the garden in use). As ever with this type of claim each case must be taken on its merits. 

About The Author

Jennifer Adams FCIS TEP ATT (Fellow) started business life in the Secretarial department of a FTSE 100 company before moving into tax as the UK Group Head of Tax of a Canadian life Assurance and pensions group. The group comprised 6 subsidiary companies and a unit trust company managing 9 unit trusts, with total premium income in excess of £700m and total staff of approx 600.

The 1990 Canadian recession resulted in the company being taken over and Jennifer moved into practice to gain experience at Senior Tax Manager level for Top 10 firms of accountants both in the UK and the Channel Islands. She now runs her own two office accounting practice and provides writing and proof reading services for specialist tax and business publication companies and virtual websites. Her work has been published by Bloomsbury Publishing, LexisNexis, Taxbriefs and Wolters Kluwer as well as Sage Publishing and the Chartered Insurance Institute. 

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