Developing your home
It’s natural to aim to increase the amount of tax-free capital gain on your home by carrying out improvements to the property
Be aware that HMRC is able to deny Principal Private Residence relief where expenditure is incurred for the purpose of making a profit on the sale of the property
Typically, HMRC only uses its power when capital expenditure was blatantly done with a view to making additional profit on the sale of the property
The message is, plan ahead. Make sure there’s a reasonable delay between making your improvements and selling the property
Typically, the tax authority likely will not seek to restrict Principal Private Residence relief simply because you’ve obtained planning permission for improvements or conversions
If you’re in any doubt, or just want to talk through your plans, then:
What can I do with my garden?
One of the most common questions we’re asked is ‘I’ve got a large garden, how can I exploit the opportunity for gain?’
That might be by way of extension, development, sale, etc
The key is not so much what you do, as how you do it
Any of these could result in the complete loss of Principal Private Residence relief on your garden plot
Well, consider just selling your garden plot, as that way you should enjoy the same Principal Private Residence relief as on your home.
However, that way you don’t get to participate in any profit on the development.
There are two simple solutions, one easier than the other:
Hang on to the plot and develop it yourself, then move into it as your Principal Private Residence
Alternatively, and as part of your long-term retirement planning strategy, you might consider selling your garden plot to a Pension Scheme (enabled under the UK Finance Act of 2010) which also acquires a ‘slice of the action’ or ‘overage’ contract, likely as part of a joint-venture with the developer. In the right circumstances, the uplift in value may be taxed under CGT rules which apply to the pension scheme
Another option is to negotiate a fixed-price contract with the developer, on which you will pay CGT, but any excess will be subject to Income Tax
It’s complex subject matter and likely you’ll only get one chance to get it right, so let’s talk