Selling Personal Land Query

S

squareboy007

Guest
I have a client who is looking for some general advice before we look at contacting a tax advisor.

He currently owns a site with his PPR on it that is circa 1.6 acres.

He is looking to do one of two things:

1. Sell entire site to a developer. Developer will build house for client on site as part of the deal and developer can use the remainder.

2. Knock PPR. Build new PPR on corner of site. Split remainder of land into two sites and install services (Water, elec. etc) and sell on these sites.

Option 1

Entire sale is CGT exempt as selling PPR. Proceeds must include value of new house built. Indexation may be restricted due to development land rules

Option 2

New house becomes PPR.

Can register for VAT and claim input credit on cost of developing sites. therefore must charge VAT on sale of Sites and pay income tax of profits.

Is there any way to treat sale of sites under CGT?

Any pointers on whether I am looking in the right direction would be much appreciated or where I can find out further info myself

Thanks in advance
 
Some points:


  • For full exemption from CGT, I think the maximum land area (including the site on which the house is built- not 100% sure of that bit) is 1 acre so under option 1 there would be a CGT issue to deal with.
  • If the site has 'development value' which is likely given its size and interest to a developer, the sale of it in any event would likely give rise to a CGT liability (even if the total area didn't exceed 1 acre). Essentially, the exemption would apply to the difference between the value of "house-plus-gardens-up-to-1-acre" without development value.
It's probably worth getting specialist advice prior to undertaking this transaction, as the consequence of an error on a deal such as that which you outline could be a seriously large (and unexpected) tax liability!
 
I wouldn't count your chickens before they're hatched.
Get the planning permissions sorted first - they attach to the land not the person usually.

However, in some local authorities restrictive conditions can apply, even though these have been questioned recently.
If they do apply, your client may not have anything to sell to the developer if permission is dependent on occupancy and/or history
 
Thanks for all the advice so far.

The CGT booklet was very helpful.

Any comments on option 2?
 
squareboy007 said:
I have a client who is looking for some general advice before we look at contacting a tax advisor.

He currently owns a site with his PPR on it that is circa 1.6 acres.

He is looking to do one of two things:

1. Sell entire site to a developer. Developer will build house for client on site as part of the deal and developer can use the remainder.

2. Knock PPR. Build new PPR on corner of site. Split remainder of land into two sites and install services (Water, elec. etc) and sell on these sites.

Option 1

Entire sale is CGT exempt as selling PPR. Proceeds must include value of new house built. Indexation may be restricted due to development land rules
Click to expand...

This is incorrect; the entire development value will be liable to CGT.

E.g. You buy a house on an acre for 140k (no development potential at the time). Ten years later you sell the whole lot to a developer for 400k, at which point the current use value of it (ie ignoring development potential) was 300k.

In this case the difference between it's residential value when you bought and sold it, is exempt (300k - 140k = 160k in this case). You can deduct this gain from the total gain (400k - 140k = 260k).

So you've made a total gain of 260k, of which the 160k relating to it's use as a PPR is exempt, leaving 100k taxable.
 
Under option 2 there will be no PPR relief. If the house has been owned since pre-tiger days, and it's base cost is relatively low, then the PPR relief could be quite valuable, and it'd be hard to see how increased gain/profit from option 2 could outweigh the value of this relief.

Under option 2, your client would also be bearing much more financial risk, rather than the developer under option 1.
 
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