CIL for Two New Build - a little thing you might want to consider

[Red Kite]

Just got the acknowledgement of the CIL Commencement so we are all set to start on site with site clearance, asbestos and demolition - can't wait.

 

We are knocking down an existing bungalow and replacing it with two new build houses (detached) and we came across an interesting 'quirk' of the CIL 'rules' that might be of interest to others (or maybe its common knowledge already). When calculating CIL for New Build you deduct the Existing floorspace from the New Build i.e. you should only pay CIL on the increased floorspace - seems reasonable. Question is if you are building Two how do you apportion the Existing to the two new houses? Our LPA said we could apportion it All to Plot 1, All to Plot 2, or 50/50 between the two - our choice. Now this may not seem a big deal but if, say,  you plan to live in one and sell the other then you will claim Self Build exemption for the one you live in, and have to actually pay CIL on the one you sell (its not Self Build so you can't claim exemption). So it really makes sense to offset the maximum against the one you sell and minimise the amount of CIL you actually pay.  Certainly worth some thought before you fill in all the tedious forms.

 

You LPA may have different views, but our CIL Team have been really helpful and responsive and actually gave us the option. I am sure that some LPA's may look at it as an opportunity to maximise the amount you actually pay! Not sure what the actual 'rules' say but if you are in the same position its worth arguing the case.

 

For us, our son is Self Building the other house so he also gets Self Build exemption so the total CIL bill is zero - but there is a slight chance that he might need to move/sell within the 3 years 'clawback period' (we plan to stay for ever) so it makes sense to offset all of the Existing bungalow against his house just in case. Note  that if you sell any-time in the 3 year period it seems you become liable for ALL the CIL - its not tapered in any way. Our total CIL valuation is over £30k so it is a big deal!

 

Happily we now have it all agreed ? and have approval to Commence on site - Yipppeeee!!!!!!

[Jilly]

If you sell the other , you will be liable for Capital Gains Tax, so that, along with the CIL might wipe out the profit...

[Red Kite]

It may even be worse than that! It seems that if HMRC decide that you are a developer and you are building and selling the house as a business then you become liable for Income Tax at your marginal rate on the profit. In most cases this will result in a higher tax bill than CGT since there is no exemption to offset. Its not clear to me exactly how they decide but it seems to be based on your 'intention' - so if you set out to build the additional house with the 'intention' of selling it for a profit then it is most likely  deemed Income Tax and not CGT. You should talk to an accountant to be sure!

[ProDave]

I think in that situation I would be building one for me, and selling the plot for someone else to build on.  Then you only have CGT to consider on the plot sale.

 

I would be a gentleman and leave the existing floor space allocation to whoever buys the plot since your self build plot would get full CIL exemption.

[Temp]

I think they may take into account your employment status. If you trade shares in your spare time you normally pay CGT. If you do it as your main occupation its likely to be income tax.