Sell­ing part of your gar­den for de­vel­op­ment could be a shrewd move

Sussex Life - - Promotion -

The de­mand for new homes in Sus­sex is greater than ever and many home­own­ers with large gar­dens might be tempted to sell part of their gar­den to a prop­erty devel­oper or build a house them­selves. But there will be tax con­sid­er­a­tions to keep in mind, says Jo White.

When you sell your only or main home any profit on the sale is gen­er­ally ex­empt from Cap­i­tal Gains Tax as a re­sult of Prin­ci­pal Pri­vate Res­i­dence re­lief (PPR). Your ‘home’ in­cludes your gar­den and grounds so long as the land is used and en­joyed as part of your main res­i­dence whilst you live there.

It is pos­si­ble to claim PPR if you sell part of the prop­erty, for ex­am­ple some of your gar­den. The re­lief au­to­mat­i­cally ap­plies to prop­er­ties of up to 1.2 acres (0.5 hectares) in to­tal. It is also pos­si­ble to claim the re­lief if your plot is big­ger than this as long as the ex­tra space is re­quired for the rea­son­able en­joy­ment of the house. How­ever, if you have a larger plot, HMRC may ar­gue the sale in part demon­strates that the land sold was not re­quired for the rea­son­able en­joy­ment of the prop­erty and so seek to deny the re­lief.

To en­sure any re­lief is avail­able, the land should clearly be part of the gar­dens or grounds and used as such un­til the date of sale. In prac­tice this means that it should not be sep­a­rated or fenced off from the area you are go­ing to keep. We would also rec­om­mend you keep ev­i­dence that the area be­ing sold was used as an in­te­gral part of your gar­den – for ex­am­ple, tak­ing pho­to­graphs of the gar­den in use.

Ob­tain­ing plan­ning per­mis­sion to de­velop part of your gar­den will not au­to­mat­i­cally pre­vent PPR be­ing avail­able and this may make the land more valu­able. But at the same time, please be aware that if you pur­chased the prop­erty with a view to re­al­is­ing a profit on the sale of some or all of it, PPR will not be avail­able.

Like­wise, if you de­cided to build the new house on your land and sell the com­pleted prop­erty this could be viewed as a trad­ing ac­tiv­ity, mean­ing at least part of the profit re­alised is sub­ject to In­come Tax and not Cap­i­tal Gains Tax. On a pos­i­tive note, if you are able to claim PPR on a sale of part of your gar­den this could re­sult in the gain re­alised be­ing tax free.

Given the po­ten­tial tax sav­ings, if you are think­ing of sell­ing part of your gar­den we would rec­om­mend get­ting pro­fes­sional ad­vice as early as pos­si­ble to en­sure any nec­es­sary tax plan­ning steps can be taken. Get in touch with Jo White, Tax con­sul­tant at ac­coun­tants and busi­ness ad­vis­ers Kre­ston Reeves.

With of­fices across Lon­don, Kent and Sus­sex we are ded­i­cated to meet­ing and ex­ceed­ing the needs of all our clients wher­ever their am­bi­tion takes them. We help you make con­fi­dent de­ci­sions about the fu­ture. We pro­vide a full range of ac­coun­tancy, busi­ness ad­vi­sory and fi­nan­cial ser­vices that will help you to achieve your per­sonal and busi­ness goals.

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