Share this content

Building property in garden- moving into new build

PPR relief on ultimate sale of both properties

Didn't find your answer?

I feel like this has been covered before but am unable to find a deifinitive answer from searches.

Client intends to build a second home within their garden.  Garden size falls comfortably within the permitted area rules.

Client's intention upon completion of the build is to make new property their main residence for the forseeable future and sell off the old property.

I believe PPR would cover the gain on the sale of the original propety and, should my client reside in the new property for many years (as is their intention), would also cover any susequent sale of the new property.

I am aware of the fact that this can be a complicated area and have looked at some of the past cases / decisions but they all seem to include elements of complication that do not apply in this scenario.

I would be grateful if somebody could provide clarity or point me in the right direction.

Thanks in adance to any / all who can assist.

Replies (13)

Please login or register to join the discussion.

avatar
By David Ex
07th May 2021 11:53

You’re better using Google than the site search function.

https://www.google.co.uk/search?q=ppr+build+in+garden

Thanks (1)
Replying to David Ex:
avatar
By dhughes1975
07th May 2021 12:21

Thanks David. All of the posts I can find, however, involve a property being built in the garden with the new property being sold or the original property being sold with some of the land then being retained and built on later. I cannot find anything covering the circumstance I describe. I'm taking this as a positive in that if there were any major issues then it would have almost certianly been discussed in the past but am obviously uncomfortable with making any assumptions.

Thanks (0)
Replying to The Dullard:
avatar
By dhughes1975
07th May 2021 12:15

Hi Dullard, I've read this case, along with a couple of others, and believe my original understanding to be true (ie PPR would be available to my client) as the aspects HMRC took issue with in each instance do not apply. I'm assume therefore that the lack of any case law regarding my client's proposed situation points to the fact that it isn't complicated and that PPR would always apply in these circumstances but, as assumptions can get you into a lot of trouble, I would be grateful to hear the thoughts of others on the issue. I just feel there may be a salient point that I am overlooking.

Thanks (0)
Replying to dhughes1975:
avatar
By The Dullard
07th May 2021 12:42

Then you're not reading it well enough.

The point in Henke is that if you own a bit of land and later build a house on it that you occupy as the main residence, the period of ownership starts when you first acquire the land (not when you build the house).

So, if you divide up the garden, build a new house and then sell the old house, then the gain on the old house is fully exempt (assuming that it has always been the main residence).

The position is different for the new house though. Let's say that you originally acquired the old house (and the land with it) 20 years ago and sell the new house in 10 years time. The period of ownership is 30 years, but the new house has only been occupied as the main residence for 10.

That is the effect of the Henke decision, taken together with the principle in Varty v Lynes (https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64377); that once the old house is sold, what was done with its grounds up to the point of that sale becomes an irrelevance to the question of future only or main residence relief.

Thanks (2)
Replying to The Dullard:
avatar
By dhughes1975
07th May 2021 13:54

Thank you, that is very helpful. It seems I have misinterpreted both cases completely. I thought the point with Lynes was that he retained part of the land and this was sold at a later date but the land no longer constituted his main residence, the PPR exemption was gone. This is why I've incorreclty assumed that the land constantly being used as the main residence in my client's case is not affected by this point. I see my error now.

To use your example then, once the new house was sold only 1/3 of the gain (10/30) would qualify for PPR?

Gain would therefore be selling price less build costs presumably but would there be a base cost applied to the land as with a standard part disposal calculation?

Thanks (0)
Replying to dhughes1975:
paddle steamer
By DJKL
07th May 2021 14:44

A/(A+B) or similar will likely need to be used re apportioning the cost of the original house into:

(1) old house sold (There is a gain but it is likely wholly relieved by PPR)
(2) New house retained

I suspect that depending upon the timing of events/their order (is new house built before old house sold) the build cost of the new house may also require introduced into the apportionment calculation.

Thanks (0)
Replying to DJKL:
avatar
By dhughes1975
07th May 2021 15:12

Yes, that is what I'm thinking. As house will already be built, a large proportion of the gain will already have been taken care of as the base cost of remainder will be substantial and this, together with any PPR accrued in the coming years should limit future liabilities anyway (property was purchased 8 years ago and so original cost is relatively high).

Thanks (0)
Replying to dhughes1975:
avatar
By The Dullard
07th May 2021 15:50

The distinction is that the dwelling has to have been used as the only or main residence throughout the period of ownership. For the grounds and gardens, the exemption only applies if they are used as the garden and grounds of the dwelling at the date of disposal.

So, the land on which the new dwelling stands is exempt on disposal, but there is no apportionment of the gain or the period of ownership, between dwelling and garden and grounds, per Henke.

Thanks (0)
avatar
By Tax Dragon
07th May 2021 14:35

dhughes1975 wrote:

I feel like this has been covered before but am unable to find a deifinitive answer from searches.

I would say raised, rather than covered. https://www.accountingweb.co.uk/any-answers/cgt-query-re-ppr-0

Thanks (1)
Replying to Tax Dragon:
avatar
By The Dullard
07th May 2021 16:14
Thanks (0)
Replying to The Dullard:
avatar
By Tax Dragon
07th May 2021 16:26

So the mucked up DIY freeloader issue on this forum is at least 5 years old. Can't blame it all on JS.

Btw... https://www.accountingweb.co.uk/community/blogs/paul-eaves/private-resid.... Better analyses may well be available.

Thanks (0)
avatar
By Martin B
10th May 2021 16:07

Building property in garden- moving into new build.

Thanks (0)
Share this content