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  • Tax

    Tax Implication on selling part of garden

    The situation is as follows:
    I have one house where I've lived for 3 years and 5 months, I am about to move out and let it out. This house has a large garden and has access to main road, I would like to obtain an outline planning permission for this part of garden and then selling the plot off to a builder, then let it out the existing house about 3 - 4 years, then sell the existing house.
    The house is in South East and if the planning permission for the land is successfully obtaining and sold, it is likely to produce a 6 figures profit. The plot will be “The permitted area”, as it is less 800 sqm – including the site of the dwelling.I understand if I am selling the land now, the Principle Private Residence relief will apply, no tax to pay.
    My intention was to apply for the planning permission then sell the land asap. But the planning application does take some time, so I think to let it out first, then apply for the planning permission while on letting. I let the prospective tenant know my intention, as I like open honest to the tenant. But because the incoming new tenant does not like to live near building site, while the construction work is at the back of garden. I am thinking about to delay selling off this part of land for about 2 years. To ensure no construction work during the 2 years tenancy.
    My questions are as follows:
    (1) If I let out the existing house for 2 years, then sell the part of garden with planning permission. Then wait for another 2 years, then sell the main house. What are tax implication will be?
    (2) What is best way to avoid paying Capital gain tax on profit of selling the land, while letting out existing house?
    (3) What is best way to handle the new tenant concern regarding do not want to live near building site?
    (4) Should I just try to get planning permission then sell it, rather than letting out? Is this the best way to get maximum return?
    Thank you very much in advance.
    Best regards
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    Hi, I'm a chartered tax advisor, so I can certainly assist with your first two questions.

    1) In your example, it may be that the full gains on disposal of part of the garden and then the house and remaining garden will be fully exempt.

    On both disposals, Principle Private Residence Relief (PPR) will exempt the actual period of occupation (3 years 5 months).

    On both disposals, the last 18 months of ownership will also be covered by PPR and therefore exempting this part of the gain. This is because the relief provides for the last 18 months of ownership to be classed as actual occupation where the dwelling or permitted area was once part of your main residence.

    The time between actual occupation and the last 18 months (6 months for the garden, 2 years 6 months for the house) could be covered by Lettings Relief. This relief exempts gains on property which was once your main residence. The relief is restricted to gains relating to the period of letting of up to £40k. So dependent on the numbers it could be fully or partially exempt.

    Feel free to email or call me ( sean@comprehensivetaxplanning.com / 07940 209 835) if you'd prefer not to make the numbers public and I can let you know how much of the gain will be exempted.

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