Building 2nd property in garden and PPR

Building 2nd property in garden and PPR

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This is not my area, but I thought I might be able to get some helpful pointers here for a friend. 

The client currently lives in a 2 bed bungalow, his PPR, total plot size under 0.5 ha. He has had planning permission to build another 2 bed bungalow on the plot. He is currently deciding between 2 options:

1. Sell the plot and gift the proceeds. As the total plot size is under 0.5ha, I think this is clearly covered by the PPR rules and should be CGT free.

2. He might decide to extend his current bungalow and live in it for a couple more years (so he has room for grandchildren to stay etc). As he gets older, he would then build the second property (smaller/energy efficient), move in there, and sell the 1st (now extended) property. This is where I am unclear - could HMRC argue that he is in fact developing the 1st property, as he already has planning permission to build the 2nd property? Or even that the 2nd property has been developed rather than built to be his new PPR?

Any ideas or pointers very much welcomed, thank you.

Replies (6)

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By Numbertaker
22nd May 2013 11:12

to clarify

Under option 1. by plot, I mean the part of the garden that has been given planning permission for the 2nd property - not sell the whole plot including current PPR.

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By gbuckell
22nd May 2013 11:50

Care

Option 1 - Agreed

Option 2 – Care is needed. In your scenario if he ever sold the new property, the period of ownership would be based on the date he first bought the old property. The period from acquiring the old property to when he moved into the new property would not qualify for principal private residence relief (same as if he bought a building plot and waited, say, 10 years, before building a house on it). Obviously if he lives there the rest of his life then this is not an issue. To avoid the problem he would need to transfer the plot to, for example, a self interested trust, while it is still part of the old property. This would be tax-free due to principal private residence relief. The acquisition date for the trust would then be a date shortly before he occupied the property as his new principal private residence.

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Replying to Glennzy:
By JimH
04th Nov 2013 08:12

How sure?
Help, a client has stumbled on gbuckell's scary analysis.

Commentators have been saying for years ESC D49 ensures full entitlement of PPR on the new build if everything's done correctly and the original home sold within 3 years after moving into the new build. Here, it seems, gbuckell suggests we have all have omitted to consider the period from original acquisition to date of moving in to new build... unless the intention is only to highlight the risk of exchanging contracts on the older home too early?

Or is it as stated? I've looked at Varty V Lynes and the 2006 Henke case, which concerns a plot purchased and left undeveloped for some 10 years before a qualifying PPR was built; does gbuckell's interpretation extend this to the OP's land which has always been a PPR - and say that it loses its previous PPR on disconnection with the original property and attachment to the new build?

My client has spotted this warning on AWeb and asked if she needs to plan ahead for future sale of her new build and I'm stumped as my view has always been that full PPR is available. Can you or any other helpful bods point me exactly to where to look? Many thanks. Jim

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By Numbertaker
22nd May 2013 11:57

thanks

Thank you - sounds even more potentially complicated than I thought.... I think he needs to take some formal advice on this. Any specialists in the Surrey area want a recommendation?!

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By darrenwilliams
22nd May 2013 12:49

Gbuckell, do you have a HMRC link or similar(case law or law) confirming the period from the old property purchased to when moved into the new property would not rank for PPR please ? Be interested to read the logic if there is one(!) ? Thanks

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By MJShone
22nd May 2013 16:39

Henke

Darren

 

Have a look at the Henke case - (2006) Sp C 550  http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=2393

I think, from memory, that that covers a similar position to yours.

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