Cil / primary residence

[Befuddled]

Hi 

 

First time poster, please be gentle with me.

 

I have a complex situation I appreciate I need professional advice on, but would appreciate any comments so I am armed so detect BS

 

I contacted one accounts/tax specialist and they quoted minimum charge £750 for 3 hours - which seems steep..

 

 I am "giving away" a strip of land to enable a current single lane bridge be built into a 2 lane bridge. (Waverley Council + Surrey County Count involved)

 In return I anticipate being given planning permission to put up two houses (on land I already own)

 

All the above takes place on my land which also contains my current primary (and only) dwelling.

 

Due to the inconvenience and noise of the bridge construction we are anticipating being able to self build and live in one of the new houses before the bridge is completed and mothballing our current 

house. (House will be built in the time between project being committed to and bridge building actually started, anticipated 2 years. Bridge will take further 2 years to compete).

 

To avoid CIL on new dwelling I understand we have to live in it for 3 years after completion

 

To avoid CGT on existing house it has to be our main residence.

 

We are pretty sure one of the conditions to allow early occupancy of the new house is that our existing house is fully mothballed (no living in - no rent etc) until the bridge is complete.

 

We would want to sell the old house as soon as the bridge is completed.

 

So the question, can we live in the new house, (qualify for CIL exemption), but still maintain the old house as primary residence (to avoid CGT).

 

I suspect not - does anyone have any imaginative ideas to exempt CIL and CGT...?

 

If anyone can recommend an accountancy company specialist in this field and this site permits recommendations I'd be happy to hear...

 

Thanks for reading post

 

 

 

[ProDave]

Are you entering into a voluntary agreement to give them the land for the road widening or is that a compulsory purchase?

 

If a voluntary agreement, I would set a 100% red line, you can have the land as long as there is NO CIL imposed on the building plots.  Try to impose CIL and you don't get the land.  They are after all getting payment in kind being given the land, so for me that would have to wipe the CIL slate completely clear.

 

I suspect you need a GOOD solicitor to negotiate the transaction, not an accountant.

[Simon Brooke]

Obviously, not knowing your personal financial any thoughts are guesses. We employed an accountant for about £500 as we planned to sell a field which would result in a capital gain mixed in with doing a barn conversion whilst living in the main house. The advice was fine but our income, due to doing the build, was very low and  the cgt exemption is  quite generous. You also need to guestimate how much gain there is likely to be on the existing house to be mothballed. You may conclude that in reality the gain may not be great enough to worry about. Of course , if it is greater than you think you are still ahead and paying tax is not the worst thing in the world.

[PeterW]

You can’t negotiate CIL - it is statute law. 
 

Better option (assuming you have a significant other) is to make one your primary residence and the other theirs, and then you have the CGT argument signed off and you can “live” in the new house. 
 

Downside you will pay council tax on both. 

[Stewpot]

The CGT issue is going to depend upon how long the house has been your primary residence. The taxable gain will be proportional to the time it isn't you main residence.

 

So, as an example, lets say you've lived there for 8 years, you mothball the property for 2 years, and then it takes 9 months to sell the place. When you sell it, you will have owned the place for ten years and nine months. For CGT purposes, they disregard the final nine months, so you only need to consider a total of 10 years, of which 8 years are exempt from CGT as it was your primary residence.

 

GCT is applied pro-rata, so 80% of any gain will be exempt from CGT. From this you can deduct the Annual Exempt Amount - which, IIRC is currently at about £12k. So, if the net gain on the sale of the property is less than £60k, you wouldn't pay any CGT. If, however, you made a net gain of £100k, then 20% of that would be taxable. But you can still deduct the AEA, so you would only pay tax on about £8k. The current rate of CGT on residential property is, I believe, 28%, so the total tax payable on a gain of £100k would be around £2.25k

 

However, if you've only lived there for 2 years, then half of the gain will be taxable (still less the AEA).

 

The longer you have lived in the property, and the less time it is mothballed for, the better the equation looks.

 

Why is the house being mothballed? Is that because it is so in the way of construction work that it is being deemed uninhabitable, and thus no council tax will be payable?

 

And, by the way, £750 for three hours work - it's eye-watering, isn't it, but that's professional fees for you. And they don't even suggest you sit down first, when they tell you that.

[ProDave]

11 minutes ago, PeterW said:

You can’t negotiate CIL - it is statute law. 
 

 

But isn't it up to the council to say what it is for and how much they need?  they could say we "need a strip of land"?

 

If it is statute law how come not all councils impose it and they impose different amounts.?

[newhome]

1 hour ago, PeterW said:

Better option (assuming you have a significant other) is to make one your primary residence and the other theirs, and then you have the CGT argument signed off and you can “live” in the new house. 

 

I thought you could only have separate primary residences if you were not married or civil partners? 

[Befuddled]

Thank you for all the great comments

 

ProDave - It is a voluntary agreement, and I have so far maintained the CIL payments are "unaccepted", but I have been told they are non negotiable. There are some other improvements the project provides in terms of footpaths/renovating canal/tow path and similar which we are still hoping to use to extract some lee way. CIL was only introduced here last summer. Providing the land to broaden the road/bridge "benefits" Surrey County Council, the CIL and PP are via Waverley Borough Council - so the exchange is asynchronous. The new bridge is being funded by section 106 acquired from several larger housing developments in the area, but it can't proceed without my strip of land, (2m x 50m). 

 

If we don't resolve the CIL issue two outcomes are possible - they try to CP the land, or scrap the idea of 2 lanes and install traffic lights. All parties strongly agree a new bridge is the best way forward. 

 

CIL would be about £100k per house, hoping the exempt the first house thru self build, and maybe sell the second plot with DPP

 

Simon Brooke - Good point, I was thinking the CGT would be from when I bought the house to selling (20 years), not for the mothball duration (couple of years). You are right the CGT would not be too great. 

 

PeterW - YES, primary house is solely in my name, the new house could be in wife's name - if it is that easy to apply CIL/CGT to each of us individually, that should work....I Think we'd end up paying council tax on both in any scenario, not sure if the full rate is applicable on an empty house. Will factor this into the negotiations. Newhome's post may thwart this idea...

 

I know myself and wife can't have different primary residences (divorcing her to save tax seems a little heartless), and I suppose to qualify for CIL, living in the house wouldn't be enough, it would have to be legally my/our primary residence ?

 

Stewpot - I need to read up on CGT, the sums will be more complicated. The house/plot cost £550k twenty years ago, and will have gone up in value to about 800k now, but by the time being sold will have gone down again as it has lost about an acre of land (for the two new dwellings) and it will be nearer a faster/noiser road. But you're right the CGT should not be too much, maybe I am focusing too much on it...

 

The project is still going through planning, but the expectation is the new houses would not be dwellable (legally) until the bridge is finished (or after a pre-agreed duration if the bridge is delayed/cancelled), but this might be negotiable, as the bridge building would be very near the existing house and access could be impacted. Certainly it would be easier to build the bridge without having to provide us a safe route through the site to our house.

 

Am I right in assuming if I build one (or 2) houses on existing house's curtilage, there is no CGT on the new houses....? This CGT would be significant.

 

 

 

 

Edited January 29, 2020 by Befuddled

[Stewpot]

33 minutes ago, Befuddled said:

Stewpot - I need to read up on CGT, the sums will be more complicated. The house/plot cost £550k twenty years ago, and will have gone up in value to about 800k now, but by the time being sold will have gone down again as it has lost about an acre of land (for the two new dwellings) and it will be nearer a faster/noiser road. But you're right the CGT should not be too much, maybe I am focusing too much on it...

[...]

Am I right in assuming if I build one (or 2) houses on existing house's curtilage, there is no CGT on the new houses....? This CGT would be significant.

 

The CGT manual for land is here:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg70200c

 

Your plan is outside my experience, but I would be surprised that if you build new properties on the land of your PPR, that they, too, would be exempt from CGT. I could be wrong, but I can't think why they would be exempt - you are only allowed one PPR exemption. Perhaps if the new build is an annex.

[Temp]

The CIL is a formula that should be applied equally to all developments that aren't exempt. S106 contributions are said to be voluntary but they aren't really.

 

4 hours ago, Befuddled said:

I am "giving away" a strip of land to enable a current single lane bridge be built into a 2 lane bridge. (Waverley Council + Surrey County Count involved)

 In return I anticipate being given planning permission to put up two houses (on land I already own)

 

I would be surprised if such an explicit arrangement was be legal. However...

 

What they probably mean is...developments such as your two houses would put an unacceptable strain on local roads unless you provided land to improve them. Your contribution of land (perhaps by way of a section 106 agreement) is needed to make your planning application acceptable in planning terms :-) 

 

 

[Temp]

3 hours ago, ProDave said:

But isn't it up to the council to say what it is for and how much they need?  they could say we "need a strip of land"?

 

If it is statute law how come not all councils impose it and they impose different amounts.?

 

No. The CIL is meant to be a formulae applied to all developments equally, although I think they can limit it to some areas of the country.

 

An S106 agreement could be used though.

[bassanclan]

I was just reading this article yesterday which you might find useful, but when you are talking about potentially  £1000s of pounds, a few hundred spent wisely now might be worth it for piece of mind.

 

https://www.accountingweb.co.uk/tax/personal-tax/confusion-over-cgt-exemption-for-new-homes?utm_medium=email&utm_campaign=AWUKPOW290120&utm_content=AWUKPOW290120+Version+A+CID_aa3c62d31490a1b835ee98d920ffddf6&utm_source=internal_cm&utm_term=Confusion over CGT exemption for new homes

 

I would also apply for planning permission for the two houses on completely different applications. You  could get pp for the first house, get exemption from CIL, then apply for the second house, otherwise they would not allow you CIL exemption as it's a 2 build not a self build.

Edited January 30, 2020 by bassanclan
Forgot to add link

[newhome]

9 hours ago, Befuddled said:

CIL would be about £100k per house, hoping the exempt the first house thru self build, and maybe sell the second plot with DPP

 

 

If you decide to sell the plot and it is sold to a self builder ensure that you don’t so anything that the LA can consider to be a material start on that plot or it may affect the self builder being able to apply for an exemption. Some LA’s appear to be playing hardball and doing all they can to ensure that CIL is paid. 

[Tony C]

2 hours ago, bassanclan said:

I would also apply for planning permission for the two houses on completely different applications. You  could get pp for the first house, get exemption from CIL, then apply for the second house, otherwise they would not allow you CIL exemption as it's a 2 build not a self build.

 

I have applied 2 houses build (1 x self-build, 1x house for rent). Coucil's CIL department applied NIL CIL on self-build part and could apply CIL only on the property for the market.

Cons : Although I am planning to build self-build house first, then the other house later,  being under one application, I had to pay CIL straightaway.

Pros: You can submit all the discharge of condition all together. If you split the application, this needs to be done in multiple applications.

Edited January 30, 2020 by Tony C

[Befuddled]

My agent has told me this :

 

Waverley’s CIL policy states : “Where  planning  permission  permits  development  to  be  implemented  in phases, each phase of the development, as agreed by  Waverley Borough Council, will be treated as a separate chargeable development”. 

 

....Which I interpret to mean one pp submission, but 2 consecutive CIL exemptions for consecutive two dwellings...

[Temp]

2 hours ago, Befuddled said:

....Which I interpret to mean one pp submission, but 2 consecutive CIL exemptions for consecutive two dwellings...

 

Remember to claim the self build exemption you need to live in the house for three years after completion.