Selling off or developing part of your home

Is this your position?

You live in a property with a large garden. You have made enquiries and believe you can sell off part of it for property development.

How you decide to do this could be the difference between paying no tax and potentially a very large amount of tax.

Let’s deal first with what YOU SHOULD NOT DO..

1. Sell your house first before selling the development plot
2. Fence off the development plot or separate it from the rest of your garden before selling it.
3. Use the development plot for any purpose other than your own private residential occupation immediately prior to the sale.
4. Allow the development plot to fall into disuse.

Doing any of the above will result in the loss of your principal private residence relief for the development plot. If the total area of your house and garden exceeds half a hectare (approx 1 1/4 acres) you may not be covered by the principal private residence exemption. We strongly advise that you seek professional guidance on this.

Here’s what YOU SHOULD DO..

There are two ways do this that we would recommend.

1. You may wish to consider simply selling off the land without falling foul of any of the things described above. The sale will be covered by the same principle private residence exemption as applies to your house itself.

2. Whilst the above is simple and straightforward you obviously do not get to participate in any of the profit on the development of the plot. So you need to weigh this against the time and involvement you would undoubtedly need to commit to in participating in the development.

If you do decide to develop it yourself, you could then move into the new property and elect for it to be your main residence. Any subsequent sale would then be tax-free. Your old house can safely be sold at any time up to 9 months after the date you move out and still be covered by the principal private residence exemption.

Your new house should be fully covered by the principal private residence exemption, as long as you move in within a year of the date that the development started. You must genuinely adopt the new house as your new main residence. If you were to sell it straight away or shortly after moving in, HMRC may regard the profit as trading and it would then be liable to income tax and national insurance.

We cannot stress enough the importance of taking professional advice if you are considering a development of this nature.

UKLandlordTax.co.uk is the trading name of Thandi Nicholls Ltd Accountants Registered Office: Creative Industries Centre, Glaisher Drive, Wolverhampton WV10 9TG.

Registered in England. Company Number 7319439. Director S S Thandi BA