How developing your home could mean you lose Principle Private Residence Relief 2

Group of construction workers. House renovation.

We all try to improve our properties, but are we doing it with a profit motive?

TCGA92/S224 (3)

The purpose of private residence relief is to relieve gains arising on the disposal of an individual’s residence so that the whole of the disposal proceeds are available to be used to buy a new residence of a similar standard. It is not intended to relieve speculative gains or gains arising from development.

The exclusion of speculative or development gains is achieved by TCGA92/S224 (3). It is important to understand the scope and limitations of this subsection so that you can apply it in suitable cases.

The subsection applies

  • where a dwelling house is acquired wholly or partly for the purpose of realising a gain from its disposal, or
  • where there is subsequent expenditure on the dwelling house wholly or partly for the purpose of realising a gain from its disposal.

Where the first part of the subsection applies no relief is due on any gain accruing from the disposal of the dwelling house. Where the second part of the subsection applies no relief is due on any part of the gain attributable to the expenditure.

If you plan to develop your property prior to sale  it could be worth transferring it to company before any work is carried out, this could help to ensure that any gain to the date of transfer will be exempt from tax.

There is a further potential risk that HMRC may view the property development as a trading activity.

steve@bicknells.net

Contact Us

 

Garden bagging – profit from property development in your back yard Reply

Home Office

The rate of new housing required to meet demand in England is now estimated at between 240,000 and 245,000 units a year, an increase of 10,000 new homes annually on previously accepted figures.

Gazumping and other nasties that flourished in the last property boom are making a return, as competition for homes increases with the bringing forward of the second phase of Help to Buy.

So now could be the time to sell off your garden:

  1. Its a way of building homes without building on the Green Belt
  2. It can be a zero risk way to make money if you sell the plot

Garden Bagging works as follows:

  • Home Owners with suitable land approach a local builder
  • The builder buys the right to seek planning permission for a nominal fee
  • If the application is successful the builder will pay up to 85% of the open market value of the consented plot less his costs

Alternatively you could develop the plot yourself for a typical self build its estimated that 35% would be the land cost, 40% build cost and 25% profit margin.

steve@bicknells.net