Oops…I did it the wrong way
It’s very common these days that taxpayers who have a large garden, sell off part of it to a property developer.
However, there is the right way to do this, and then there is the ‘Intelligence Trap’.
The wrong way Things you should not do:
Sell your main residence first before selling the plot of land
Segregate the plot in any way from the garden
Use the garden for any purpose other than as part of your main residence at any time
Allow the plot to fall into disuse
Any and each of the above will result in the loss of the main residence relief from capital gain tax.
The right way Simply sell off the plot of land. The sale will enjoy the same exemption as applied to your house itself.
Hang on a minute…can I also benefit financially from the development? Yes, if you hang onto the plot and development it yourself, and yes I appreciate I am contradicting what I’ve just said above; but let me explain.
If you develop the plot by building a new property and then move into this property adopting it as your new main residence. The new house should also be fully covered by the main residence relief along as you moved in within a year of the date the development started.
Your old house can be safely sold at any time up to 9 months after the date you move in and still be covered my the main residence exemption.
There are some potential dangers to what is suggested above, but the exemption should be available if you genuinely adopt the new house as your main residence. As ever, make sure you take good advice. And for those of you contemplating selling the new house straight away and claiming the main residence exemption…remember the Intelligence Trap!?
The Intelligence Trap is a fascinating book by David Robson, the subject of which is why smart people make dumb mistakes and why the cleverest amongst us, make the biggest mistakes.
Article by Simon Howley ATT CTA ATA AFA MIPA