Client purchased a small plot of land ("A") adjacent to his home and garden ("B").
Plot A has been the subject of planning applications in the past but was deemed to be too small for a house to be built. My client's idea is to add part of his garden ("C") to plot A to make it large enough for a house. He has obtained outline planning permission for this.
My reading of this is that as the gardens of his home are within the half-hectare permitted area he will be able to claim PPR relief on part of the sale of the land comprising the new plot (A + C).
If that is agreed how would we value C - would it have to be on the basis of the change in value of the main home and garden after removing this piece of the garden i.e. value B - value (B-C)?
The HMRC guidance is that PPR relief is due so long as "the land has not been divided off from your garden or developed in some way". This would seem to preclude fencing off the area and getting it valued separately.
Do others agree? Any warnings/hints/pointers gratefully received.
Replies (10)
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To me there is more than a hint of trading.
Your client does not appear to have purchased the extra land with a view to augmenting his garden, he appears to have purchased with a view to receiving planning (once he adds some of existing garden) and I presume thereafter selling.
Not sure CGT considerations are even on point.
Edit; having now reread your post sorry, I see you are only talking about PPR relief re the former bit of garden to be added.
My view would be that when eventual sale an area apportionment re the eventual selling price might be most appropriate, but as the extra garden appears to be a ransom strip re developing the other site (so holds a high value) maybe a conscious sale into a distinct legal entity owning the undevelopable plot (without the garden extra) might have been worth considering.
To add to DJKL's point re trading, I would say that at the acquisition of plot C there was a deemed disposal of A under TCGA 1992, s. 161.
The "cost" of A + C for the purposes of determining the trading profit is the cost of C plus the value of A at the date of acquiring C.
Why is the client buying plot C again? You will be aware of the new transactions in land provisions in FA 2016? I do not see any way that it will not be taxed as trading income.
He is buying plot A (which is what I meant first time round) in order, as you say, "to make a quick buck".
Assuming that plots C and A are in the UK, I would suggest that the new Part 9A of ITA 2007 applies, irrespective of how you might see it.
http://www.legislation.gov.uk/ukpga/2016/24/section/79/enacted?view=plain
My advice would be to bank the PPR relief under TCGA 1992, section 161 (because you can), and move on.
Assuming that plots C and A are in the UK, I would suggest that the new Part 9A of ITTOIA 2005 applies, irrespective of how you might see it.
I believe you mean Part 9A ITA 2007
Why, when he bought plot C ,did he buy it? Purpose test.
He surely bought to obtain planning and sell for a profit, there is no indication he bought it to say augment his garden. If he bought it years and years ago and used it as additional garden ground in interim my view might change, but your original post strongly implies his purpose as making a profit.
We have a process here, purchase, obtain planning (by adding a bit of what he already owns) and selling- certainly sounds like trading to me.