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Self build into FHL

ER on FHL selfbuild & separating land/property gains

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Individual purchased land 10 years ago and finally getting round to developing it. Options on the table are:

1) live in it
2) sell immediately
3) rent it out

Tax implications for each:

1) None initially, however upon future dispoal will need to apportion PPR from 2019, with past 10 years not included apart from the first 12 months)
2) Likely to be taxed via income tax rather than CGT, especially as his sole trade is a builder
3) Income tax on rental income

Subject to the above being accruate, the query I wanted to clarify is if he were to rent it out as a FHL subject to all conditions being met naturally, then its my understanding that as long as he runs it for 2 years he'll get ER - but on the full gain or just on the proportion of time it was used as a FHL ie 2 years?

Taking this a step further relating to point 1. I thinking we should advise to get a valuation on the land now before the build commences. Otherwise if he were to sell it in the future after a few years of PPR then a high proportion entireĀ gain would be taxable, which doesnt reflect the facts. Is there any legs in noting now the FMV gain and arguing to HMRC that this is what should be taxed upon ultimate disposal?

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31st May 2019 11:15

1) You won't get the first 12 months, unless you move into it within those first 12 months. It might also be within 2 if there's insufficient quality of occupation as a residence. PPR will always be time apportioned though, because that's what the legislation says.

2)It sure as 5h1t will be taxed as income. But, you could get any uplift over the 10 years before development starts as CGT with the right facts.

3) Duh! To get ER it just needs to be an FHL for 2 years, and then the whole gain attracts ER.

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By jaxx789
to Vile Nortin Naipaan
31st May 2019 11:40

Thanks, just to clarify then we're stuck in that if he were to live in it and then sell in the future theres not much we can do in drawing a line in the sand now as to the 'gain' on the land before the real gain begins (being built) when its his PPR?

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to jaxx789
31st May 2019 11:43

No. No way at all. As I said, the time apportionment calculation is imposed by the legislation.

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31st May 2019 11:22

Where is the land in the accounts at the moment? Why?

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By jaxx789
to Tax Dragon
31st May 2019 11:37

The land is owned personally so not in the accounts. The intention was to always build a home for himself but just exploring if he were to flip it

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to jaxx789
31st May 2019 11:45

If you develop it for sale, you will get a gain on appropriation to trading stock liable to CGT at that point (but you can elect to ignore it, unless you're going to go on to make an overall loss).

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31st May 2019 14:15

I know there is no mention of the individual being married but if the land is transferred to a spouse before it becomes the main residence, then the spouse effectively takes the original base cost (nil gain/nil loss), but doesn't take the non-qualifying ownership period.

In scenario 1) therefore, as long as the conditions in CG64950 are not satisfied, the past 10 years of history can be wiped out.

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to trust.pem
31st May 2019 14:39

A builder building his or her (or other) own house for him- or her- (or other-) self or his or her (or other) spouse might just have some other tax issues to think about.

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to Tax Dragon
31st May 2019 14:53

I think you mean spouse of civil partner!

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