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Building house in garden & moving into it

Client is considering buying a house, building a 2nd house in the garden, then selling the original

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Client is considering selling his principal residence and buying a house to move into, then building a 2nd smaller house in the garden and downsizing, moving into the new build, then selling the original house (with less land). 
 

My initial thoughts are that PPR would be available on the sale of the main house (at which point the client moves into the new build).  
 

I've seen cases where a property has been built in the garden and sold, but never the other way around. 
 

Anyone disagree with my thinking that PPR should be available (assuming the client actually lives in the house initially)?

thanks

Replies (19)

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By Duggimon
22nd Feb 2021 10:21

I disagree, your client already plans to not live in the first residence and so there is no degree of permanence. If HMRC are advised of the facts they will seek to disallow PPR entirely.

If he was building a house in his current garden and moving in to that my answer would be different, but he's buying this new house to sell it on.

I suppose the key question here is how much of a gain do you think he's going to make? Because I would expect it to be very small.

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By DJKL
22nd Feb 2021 10:31

Surely depends how the house to be bought is priced, if it has planning when bought or there is a planning gain uplift to be accounted for?

If it were capital gains on an A/(A+B) basis a goodly chunk of the current land value likely could go to the new build , plus a slug of the builder's margin if a self build

Having said that on the facts described one has to ask if perhaps Income Tax will be more appropriate.

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By CJaneH
22nd Feb 2021 11:07

My feeling (rather than opinion on tax law) Providing he sells the first PPR and lives in the 2nd PPR then he should get PPR relief on the 2nd house.

It is a matter of fact that you are entitled to PPR relief on the house you live in. However if he does little to the house 2 is there likely to be much gain

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By DJKL
22nd Feb 2021 11:44

TCGA 1992

https://www.legislation.gov.uk/ukpga/1992/12/part/VII/crossheading/priva...

224 (3)

Sections 223 and 223B shall not apply in relation to a gain if the acquisition of, or of the interest in, the dwelling-house or the part of a dwelling-house was made wholly or partly for the purpose of realising a gain from the disposal of it, and shall not apply in relation to a gain so far as attributable to any expenditure which was incurred after the beginning of the period of ownership and was incurred wholly or partly for the purpose of realising a gain from the disposal.

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Replying to CJaneH:
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By DJKL
22nd Feb 2021 11:49

Yes, there could be a gain,if a gain is on point, the base cost upon purchase would need apportioned across the two assets resulting from building house 2(House 1 with smaller garden and House 2 with part of original garden), given planning uplift on land re new build could readily be 25%-30% of the second property MV, if a A/ (A+B) apportionment were to be done a slice of the original cost of House 1 might well ascribe to House 2 and House 1 might not lose much value with the loss of its larger garden so lead to a gain.

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By Hugo Fair
22nd Feb 2021 12:09

"It is a matter of fact that you are entitled to PPR relief on the house you live in" is not true as an absolute statement. There are a plethora of conditions to be met (such as garden and grounds not exceeding half a hectare).
Nevertheless, thanks to DJKL for explaining scenarios in which a gain may result (without which the consideration of PPR seemed irrelevant).

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By DJKL
22nd Feb 2021 12:24

I could add that sometimes a smaller garden actually, somewhat perversely, makes a residential property more attractive- one of my employers tried to sell his large house with 14 acres for a long time, no takers, he chopped the garden down to nearer 6 acres and got the property sold for pretty much the same money; these days some people just do not have the time for all the maintenance a larger garden/mini estate needs.

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By Paul Crowley
27th Feb 2021 17:19

'It is a matter of fact that you are entitled to PPR relief on the house you live in.'

Lots of tribunal decisions disagree

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By Tax Dragon
22nd Feb 2021 16:18

Manchester_man wrote:

Anyone disagree with my thinking...?

Odd question - inviting comment only from those who disagree. Also, failing to provide enough information for anything like a considered opinion means that anyone within your favoured category of disagreers is there because of the assumptions they have made to fill in the blanks.

You should of course take the points raised on board [is it a 'residence'? (CG64220 - 64465); does s224(3) apply? (CG65200 - 65271); is income tax in point? (I'm a bit lost with this one TBH - doesn't sound like trading, and TiL... well, your question comes first (s517M ITA 2007)); and maybe others]. But I wouldn't be swayed by other people's assumptions in here - you'll need to reach a view yourself or provide more details (pertinent to the points raised, for starters).

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Replying to Tax Dragon:
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By Manchester_man
24th Feb 2021 13:44

Tax Dragon - nothing odd about the question at all. Nobody else had any difficulty in interpreting the question and I am fairly sure that most people would consider my “does anyone disagree” to be equivalent to ‘what are your thoughts’ or ‘am I missing anything’.

Nonetheless, if I could edit the question, I would change “does anyone disagree” to “does anyone disagree or agree” to satisfy you.

More importantly, I remember that you made a similar remark on the last question I posted and so I have to ask, are you like this with everyone or are you specifically targeting me?

For the record, I post very little these days compared to what I used to contribute. I have always been the type of aweber who contributes to the forum rather than someone who only feeds off others, so I have ‘earned my stripes’.

Please therefore kindly refrain from treating me like a numpty.

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Replying to Manchester_man:
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By Justin Bryant
24th Feb 2021 14:28

The rest of us have got used to her rather quaint obtuseness so just ignore her (mostly). See her latest gem here: https://www.accountingweb.co.uk/any-answers/tax-solicitors-how-to-become...

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By Tax Dragon
24th Feb 2021 14:36
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Replying to Manchester_man:
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By Tax Dragon
24th Feb 2021 14:33

Your reply to my comment on your previous question was "Hi. Yes, I know, I totally agree!" What are/were you seeing there to take offence at? Genuine question. (And why didn't you alert me at the time?)

But, more importantly, my second paragraph above summarises some issues pertinent to your instant question and gives you references to look them up. Sorry if you see that as treating you as a numpty. I rather thought that being provided with such issues and references to look them up might be the purpose of your question, however you asked it.

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By johnjenkins
26th Feb 2021 10:05

My view is that PPR is available but you will get a challenge from HMRC. They challenge most PPR claims where a second house is built in the garden.

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Replying to johnjenkins:
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By Tax Dragon
26th Feb 2021 11:30

PPR either applies or it doesn't. In the OP's case, it will apply subject to the first two issues identified above (the income tax point comes later, as I explained). (I haven't thought of any more issues, on the facts supplied.)

So be careful using words like "available" and "claim". They can be misleading. (I know "available" came from the OP. But I wouldn't use it back.) PPR is automatic (except in a trust context).

Sorry if that sounds like pedantry. But the point can be significant. For one thing, it means a loss on an OMR is not allowable.

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By maxaca
26th Feb 2021 18:04

PPR is not automatic - there is a wealth of case law to support this - and intention and facts are key - as the client has stated that his intention is to develop and sell even before he has sold his existing residence (for which he should get PPR) then he is effectively developing with a view to profit i.e. trading and his arguments for PPR would have to be very robust and an election would be required as he would have more than one residence

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By Tax Dragon
26th Feb 2021 18:51

Automatic in the sense of not optional. Not a claim. If you meet the conditions, you get the 'relief' (even if it's a loss being 'relieved').

Whether the OP's client will meet the conditions is the question. There's not enough info provided to say. So best we can do is list issues - ideally with references for OP to go and read.

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By [email protected]
27th Feb 2021 11:47

A common scenario is: What might be called a 'part-time property developer' buys a house and moves in but carries out major renovation work over the following 1 to 3 years, then sells making a large gain and claiming PPR. He moves on to do another, clearing around £100k to £300k tax free every two years on top of his regular income. HMRC could argue that he bought with the intention of making a profit, but they never seem to pick them up.

The difference in the present case is that this one is NOT bought with the intention of making a profit, but as a way of acquiring the land on which the buyer wants to build his own new home, and to provide somewhere to live while his new home is being built. So PPR is NOT disqualified on that basis.

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Replying to [email protected]:
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By Tax Dragon
27th Feb 2021 13:05

george.gill-AT-themacds.com wrote:

...claiming PPR.

However many people use that word, it's not a claim.

But you've highlighted another consequence of that: HMRC not 'picking them up' is not indicative of any kind of approval by HMRC of a claim. Like the rest of us, your 'part-time property developers' are under self-assessment. If they treat themselves to an exemption to which they have no entitlement, then the time limits for discovery are the same as for any other case: 4 years for incomplete disclosure without careless or deliberate conduct; 6 years if careless; 20 years if deliberate.

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