SeaSocks

Bungalow and plot... hello!

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Hi all!

 

We are right at the start of this... Have seen an opportunity for a bungalow on a large plot with access to where there's ample space for a new build. Drainage won't be a problem either.

 

Our aim is to do both projects resulting in a major financial benefit for our future. Our quandary atm, is about what order to do things in to be as efficient as possible. I'm leaning towards: live in bungalow, develop plot. Move into the plot and  develop the bungalow then sell the plot, move back to the bungalow/house and maybe sell that..

Financial and tax implications to the above or a better way of doing it would be very welcome and helpful!

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Your most efficient way regarding CGT would be to live in the bungalow Build the house Sell the bungalow and move into the house 

Six months down the line you can sell the house if you wanted to 

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Unless you live in the new build for 3 years you won’t be able to claim any CIL exemption, so this looks like a 5-6 year programme if you’re looking to maximise benefit of both the tax position and the allowances. You may end up with some second home council tax issues too as they have got less and less generous with what they will allow you to do with renovations etc without paying council tax. 

 

CGT will be your biggest issue, as will cash flow unless you can develop at least one of the builds from savings or current equity. A lot of mortgage companies may see you as a developer. 

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HMRC will tell you there is no fixed time limit that you have to live in a house before it becomes your Principle Private Residence BUT that your intention at the outset can be taken into account. So moving house for work reasons after just a few weeks might be enough to avoid tax. However telling the bank you want a short term loan because you intend moving soon after completion might be enough for the tax man to decide you were building for profit all along.

 

I reckon you should live in the bungalow while building the house.

Move into the house and do up the bungalow quickly.

Sell bungalow.

Wait three years until you are exempt from the CIL and move house.

I would avoid returning to the bungalow unless you can find a good reason - such as not being able to afford the house or a medical reason for avoiding stairs?

 

Avoid renting out the new house before you live in it as leases are exempt from VAT rather than zero rated. This means you can't reclaim the VAT paid during its construction as you normally can.

 

If the bungalow has been empty for more than 2 years don't move in until after work starts on its repair. That way the builder you employ to do the work can reduce rate VAT to you. Move in first and he can't.

 

If HMRC decide you are doing all this to make money it can be taxed as Income Tax rather than CGT so the tax bill might be higher than expected.

 

 

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Yeah, didn't think this was straightforward!! Thank you all @nod, @PeterW @Temp for your sage advice, think I will seek some expert advice on this as it sounds increasingly like it will  be money well spent! If anyone knows of a decent accountant specialising in this kind of thing please tell...

 

I don't think CIL in the area is too crippling (circa £2k for a 100sqm build).

 

Interested though @Temp  to know why you say ' I would avoid returning to the bungalow unless you can find a good reason'?  We intend the house build to be a fairly small one, and the converteed bungalow to be the main draw, or where we want to live eventually. But do then intend to sell that to move on to our final project somewhere, hopefully near mortgage free.. Mebbe wishful thinking...

 

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The simplest way to do this may be to obtain planning consent and sell the plot to others on the basis that they complete the project within an agreed time, then use some of the proceeds to do up the bungalow.

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In most places it is likely that you will make nearly as much or more from selling the plot with Planning Permission rather than spending 1-2 years running the build of a new house.

 

To a degree that depends where you live. In some places unencumbered plots for new houses are like hen's teeth. Check the numbers.

 

Ferdinand

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You also very much need to be sure that it doesn't have an underground main sewer or electric transmission underneath. 

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6 hours ago, SeaSocks said:

Interested though @Temp  to know why you say ' I would avoid returning to the bungalow unless you can find a good reason'? 

 

Because the tax man may see your temporary  occupation of the house as an attempt to avoid tax by claiming its your Principle Private Residence. You dont want them to think you were building it to sell for profit all along. I'd move in, tell your bank and employer you have moved house, hold a party, invite friends. Eg do all the things you normally do when genuinely  moving house. If you really must  move back into to bungalow think up a good reason why you might do that other than so you can sell the house for profit. Perhaps you found the new house too small? 

 

https://www.the-self-build-guide.co.uk/self-build-capital-gains/

 

Quote

 


Serial Self Builders

Some self builders repeat the process of building, moving in and moving on, rolling equity gains into subsequent houses and avoiding capital gains tax (CGT) along the way. This is a grey area in tax terms and the Inland Revenue may take the view that self building has become a business and seek to tax the gains as income. This is particularly so if no other sources of income can be demonstrated.
 

 

 

 

 

 

Edited by Temp

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Thanks @Temp Sage advice... and food for thought. If I can accomodate enough people, you're on the list for the housewarming... 😉

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22 hours ago, Ferdinand said:

In most places it is likely that you will make nearly as much or more from selling the plot with Planning Permission rather than spending 1-2 years running the build of a new house.

 

To a degree that depends where you live. In some places unencumbered plots for new houses are like hen's teeth. Check the numbers.

 

Ferdinand

True, it has been a thought...

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22 hours ago, Ferdinand said:

You also very much need to be sure that it doesn't have an underground main sewer or electric transmission underneath. 

thank you @Ferdinand I have done the drainage search. Any idea where i do the electrical and mining etc searches? Other than a conveyancer....

 

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On 29/10/2020 at 11:30, SeaSocks said:

thank you @Ferdinand I have done the drainage search. Any idea where i do the electrical and mining etc searches? Other than a conveyancer....

 

 

I believe there is a website - @PeterW has one in his head he recommends, I think - I will have to look in the internet undergrowth to find it 😎.

 

If no one posts one, then give me a poke in a day or two.

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