Capital gain tax on PPR

Capital gain tax on PPR

A principle private residence is a plot with a bungalow . There is a planning permission to demolish the bungalow and built two semi-detached houses on the site. Intention is to build and occupy one house to continue as PPR and sell the other one? How to calculate the capital gain tax on disposing of the second house. 


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25th Feb 2013 19:50

I think the problem here is that HMRC may well try to deny PPR on the second bungalow, on the grounds that it has not been the PPR.

The orginal home has been demolished. I would therefore see this as a part disposal, where the starting point would be to split the land using the part disposal rules. I would then deduct the costs of building the second home.


However, I would also see the HMRC may try to subject the profit to income tax, using the anti avoidance rules that is contained within the Capital Gains leglisaltion.


See http://www.hmrc.gov.uk/manuals/cgmanual/cg65200.htm etc.



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By pawncob
26th Feb 2013 10:43

65230 says

If an argument can be sustained that an individual has acquired a dwelling house wholly or partly for the purpose of realising a gain from its disposal, then a charge to tax on trading income will take priority over an assessment to Capital Gains Tax. 

Presumably PPR existed before planning was granted, so trading can't apply.


Has demolition occurred yet?

Can you build and occupy just one semi? Or dispose of part of garden?.



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26th Feb 2013 11:00

Multiple problems

Leaving aside the income tax issue, I think there are other problems. Once the bungalow has been demolished all you have is a plot of land. If this land was sold there would be no PPR relief. The house built and sold cannot benefit from PPR relief as it has never been a PPR or part of a PPR (unlike the flat in the example in CG65271). The house built and used as a PPR will benefit from PPR relief but only from the date it is built. But the acquisition date is the date the land was originally acquired but the earlier period no longer qualifies for relief.

A possible partial solution is to engineer a disposal (to a self-interested trust perhaps?) before the demolition takes place. That way the base cost is uplifted with PPR relief and the acquisition date becomes a date just before the new houses are built.

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28th Feb 2013 15:38


In this scenario a s24 claim does look to be a good idea. A loss arises on the house itself which is not allowable because of PPR. However, s24(3) deems the land to be sold and reacquired at market value as a separate transaction. Any gain on the land is relieved by PPR and the land is now reacquired with a current date.

The only hesitation is whether the land can still qualify for PPR relief. Clearly if one demolished a house and then sold the land no relief would be due. In this case the house and land are deemed to be sold simultaneously and so I incline to the view that PPR relief is still, just, available!

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