Posted 20 October 2015 - 06:16 PM
First time poster!
I have a property that was gifted to me around 20 years ago. It is the only property in my name and I have lived in it as my main residence up until 8 months ago. It is now a rental property.
I have planning permission to build a dwelling on the site. I would like to build a house and then rent it out.
Before I approach a legal professional would anybody have any idea of my tax implications if I
a) sell the building plot
build a house and sell it
c) build a house and rent it out
I hope this makes sense and is not too vague. Thanks in advance.
Posted 20 October 2015 - 06:56 PM
When the property was gifted to you, was it the primary residence of the person that gifted it? If not, was any CGT owing at that time and if so was it paid at the time of the gift, or was hold-over relief "used".
ie. did you start 20 years ago owing any CGT?
Since that time, you will get private residence relief against any CGT owing for the pro-rata period that it was your primary residence.
The difficulty is the increase in value that occurred when you got Planning Permission. If it was your primary residence at this point then you could argue that private residence relief could be used against 100% of the value uplift that occurred when planning permission was granted.
If you were living elsewhere when you were granted PP, then it could be argued that CGT is owed on all the value uplift.
With regards to paying CGT, it's up to you to declare it on your Tax return and then for HMRC to question it if they believe you have done something wrong (assuming you are a private individual and not a property trader/developer.)
In your position I would sell it now as a plot with PP and declare no CGT. It's only been rented out a short time compared to length of ownership and you don't own another property.
Also, the greatest value uplift is in gaining PP, you'll probably earn little more by developing it, and have to do a lot of work and take a risk in doing so.
If you wish to develop it to sell or rent, then get it valued now by a friendly valuer that will show as high as possible value for it. That draws a line under the uplift to date as anything going forward will definitely attract CGT, unless you live in the developed property for a short while.
It's not clear if the PP is for a second property on the one plot, or a replacement dwelling. If for a second property then once the title is/was split private residence relief could only be used against the part that contains the house you are living in.
Not sure about the renting option, it seems the Tax changes coming in around rental properties has made that less attractive, especially if you'll have a mortgage.
Edited by 1anR, 20 October 2015 - 06:56 PM.
Posted 20 October 2015 - 08:10 PM
The property had been the primary residence of my mother when it was gifted to me. She is still alive and also continued to live there until a couple of years ago. No CGT was owed at the time of transfer.
I am unsure as to the transfer method, I'm guessing it was 'deed of gift'? My mother cannot remember either nor which solicitor she used!
When the transfer took place the property had never been registered with the land registry. On the title deed I am down as the sole owner, title absolute. I was expecting my mother to still be on there? I am unsure from the title deed if you can tell if a property was gifted?
From the time of transfer I have lived there on and off as work permitted, along with renting elsewhere. It is the only property I have in my name and I have always had my bank accounts, credit cards etc. at this address. I am now concerned about my CGT liability.
My plot was been valued at £140K.
Edited by matt8626, 20 October 2015 - 08:10 PM.
Posted 20 October 2015 - 09:20 PM
The Title won't show that it was gifted (at least, I haven't seen one that does), it may declare a value, whether or not any consideration was paid.
However, from what you have just explained, you may also need to consider a potential exposure to IHT if the value of your mother's estate is above the threshold.
While the absolute title may have been transferred to you, if your mother continued to benefit from the property, ie, live there without paying a market rent, then the gift would not be considered as a Potentially Exempt Transfer with respect to Inheritance Tax. The 7 year period to qualify as an exempt transfer would only start once she no longer benefited from the property.
Edited to add:
Don't forget you get a personal CGT allowance of £11,100 before you'd pay any CGT. So if you pro-rata'd the value uplift and less than £11,100 of the increase was when you weren't living there, there would be no Tax to pay.
Edited by 1anR, 20 October 2015 - 09:30 PM.
Posted 20 October 2015 - 09:41 PM
All that you have stated are all factors that I have to consider.
I really need a copy of the documentation relating to the transfer of the property. The land registry stated form OC2 will give me more information? Do you know if this is a complete copy of the total transaction of transfer?
Posted 20 October 2015 - 10:33 PM
I've relied on the online search function for getting copies of Title Documents.
It's £3 each for the Title and Plan documents. I'm not sure the Land Registry keep any other documents that relate to a Transfer. Any contracts or Deeds of Gift would be held by the Solicitor or passed to the Purchaser (I think)
Edited by 1anR, 20 October 2015 - 10:44 PM.
Posted 20 October 2015 - 10:40 PM
1) Sell the plot..
I believe you can nominate the house as your Principle Private Residence (PPR) for upto two years after you moved out. I'm pretty sure this has been applied to properties that have been your PPR, then rented out, then finally sold.
The main problem I see is that while PPR relief normally applies if you just sell off part of your garden, it doesn't apply if you "spend money on it in order to realise a gain on its disposal" which you did when you applied for planning permission. See page 2.
Edit: This is a bit of a grey area. I recall there was some fuss about this in the papers a few years back so perhaps the HMRC don't enforce this if you only get planning permission? More research needed.
2) Build a house and sell it.
Much the same as option 1) UNLESS you move into the new house and make it your PPR before eventually selling it. There is no minimum period that you would have to live there BUT you really must live there. The HMRC may look at your motives at the outset. For example they may ask your bank what you told them when you asked for a loan. Did you tell the bank you wanted a self build mortgage or a short term business loan to build a house and make a quick buck? What did you post on internet forums :-) Perhaps now is the time to decide on that self build you always planned to do. Just bear in mind it's not easy to make a profit building houses. It would qualify for the self build VAT reclaim scheme so you could buy materials yourself and use subcontractors to build it. Potentially saving money.
3) Build a house and rent it out.
Would be liable for CGT when sold. Would not qualify for the self build VAT reclaim scheme so you would have to employ a VAT registered builder to construct it. The house would still be zero rated for VAT but the builder expects to make a profit so the house would likely be more expensive than if you purchased materials and used subcontractors.
I believe there may also be another VAT issue with buildings that are immediately rented out after construction. I'd have to look up the details.
Edited by temp, 20 October 2015 - 10:54 PM.
Posted 20 October 2015 - 10:59 PM
I'm no expert, but I think that is referring to private residence relief not being allowed if the property was purchased with the intention of making money. As it was acquired as a gift 20 years prior, this wouldn't be the case.
Posted 21 October 2015 - 03:27 PM
1anR, I have paid the £3 for a copy of the title deed. I am listed as the sole owner, title absolute. We cannot remember the solicitor we used for the transfer of ownership? The property had never been registered before with the land registry and they have told me I am down as the first owner?
They suggested form OC2. I am not sure what information will be expanded upon that isnt on the title deed? Do you think it will be copies of the documents sent in by the solictors?
I just need to know my position re. CGT. How deeply do HMRC liaise on matters with the Land Registry? This is the only property I have in my name.
Posted 21 October 2015 - 03:36 PM
Irrespective of my tax liability, I have taken on board what you said in the above quote. I have been told my plot is worth £130/£140K and a four bed house would be worth £420k. I would have to pay for it to be built in its entirety. Would those figures stack up?
I guess I'm asking how much to build a 4 bed property to a reasonably high finish? Would the margins be too thin for the effort involved? Or have you already supplied me with this answer?!?
Posted 21 October 2015 - 04:00 PM
That suggests your figures are roughly accurate as that £300K could easily vary by £50K depending on site conditions, spec, landscaping, where in the country you are etc.
If you do more work yourself, you may be able to build cheaper, although as temp points out, if you don't intent to live in it you will have to pay VAT on the materials.
Is there a CIL charge on the development? That could also be around £25K, which you wouldn't be able to avoid unless you lived in the property for 3 years.
This is just plucking figures out the air though, you need to properly cost it.
Posted 27 October 2015 - 01:51 PM
I have found them exceptionally helpful, and sometimes go to the local office for an appointment.