CGT on your house. Court case.

[Temp]

This court case changes the rules regarding CGT relief on self builds. 

 

It appears that in the past you wernt entitled to Principle Private Residence Relief until you move in.  

 

https://www.telegraph.co.uk/money/tax/capital-gains/hmrc-capital-gains-rules-wrongly-58-years-homeowners-refund/

 

Quote

 

Gerald and Sarah Lee bought a plot of land in October 2010. They demolished the existing property and built a new one which they moved into in March 2013.

When they sold the property for a profit, in May 2014, they claimed the full PPR exemption.

 

HMRC disagreed and said that they were only entitled to relief on a time-apportioned basis when they lived in the property between March 2013 and May 2014 out of the total period of ownership which began in October 2010. 

 

It claimed that CGT was therefore due on a gain of £540,000 (that’s a tax bill of around £150,000). The Lees challenged this in court where the key issue was when the “period of ownership” commenced. 

 

Was it when the plot was acquired in 2010, as HMRC claimed, or was it only in March 2013 when the house was completed? 

 

In a detailed ruling, the judges decided that the period of ownership only started when the building was completed.

 

This decision clarifies how the law should be interpreted, not just now but for all previous years. This could mean that many other homeowners will have been told by tax inspectors to pay CGT that we now know was not due. 

 

 

[joe90]

Makes sense to me. You can’t live in a house till it’s finished 🤷‍♂️

[ProDave]

This is interesting as this is a situation we might face soon (sale of our first self build).  I had assumed I would put the date we moved onto the plot into a static caravan as the start of the period of ownership.  After all from that date it was out main residence even if it was only a caravan, we had nowhere else to live.

 

[Big Jimbo]

7 minutes ago, ProDave said:

This is interesting as this is a situation we might face soon (sale of our first self build).  I had assumed I would put the date we moved onto the plot into a static caravan as the start of the period of ownership.  After all from that date it was out main residence even if it was only a caravan, we had nowhere else to live.

 

If it was your only residence, I thought that no tax was due ? My belief was that if you keep doing it HMRC get miffed ?

[ProDave]

8 minutes ago, Big Jimbo said:

If it was your only residence, I thought that no tax was due ? My belief was that if you keep doing it HMRC get miffed ?

Yes it was our own residence from moving into the caravan to moving out of the house.  It has been let since, so fair doo's CGT will be due for the period it was let, but I would not expect it to be due for the period we lived there.

[Temp]

The ruling in this case effectively puts most of their gain into the period after the house was occupied and therefore exempt. 

 

But what about the gains made before the house was finished?  For example the planning gain when PP was granted? I wonder if the ruling means HMRC will argue that gain is taxable because the ruling says your ownership of it as a PPR only begins when you move in?

Edited October 24, 2023 by Temp

[ProDave]

22 minutes ago, Temp said:

But what about the gains made before the house was finished?  For example the planning gain when PP was granted? I wonder if the ruling means HMRC will argue that gain is taxable because the ruling says your ownership of it as a PPR only begins when you move in?

That would only apply to anyone lucky enough to have bought say agricultural land and obtained planning permission.  I suspect most self builders will have bought land with PP in place and paid building plot prices.

[Pendicle]

2 hours ago, ProDave said:

Yes it was our own residence from moving into the caravan to moving out of the house.  It has been let since, so fair doo's CGT will be due for the period it was let, but I would not expect it to be due for the period we lived there.

@ProDaveWhen I looked into it the accountant explained,

The gain is :what you sell property

minus what you originally bought property for ( 20 years ago)

minus all the improvement costs ( in our case kitchen/bathroom/roof/ floor/ rewriting/boiler)

Also there are some costs that you can’t claim as rental expense as seen as improvement like new kitchen but you can add to CGT expenses - so if you need to do work to improve house before selling you can minus off sum

minus a sum relating to the % of how many years you actually lived in it (13yrs)versus renting it ( so far 7 years)

Minus allowance (was 12k now 6k April 24 3k) that is per person so if owned jointly can double it. Then CGT is based on income, higher 28% lower 18% - there are sites which has calculators but kept getting different amounts so once we sell will also have to pay accountants to work it out. 

 

[puntloos]

This one is interesting, I am hoping it'll apply to me but I'm not holding my breath. My situation is that I bought the place but took a fairly long time to draw up our plans (architecting, tender stage, planning permission) and during this time we didn't live in the old house, but let a few friends stay in it while they were selfbuilding, and then a ukranian refugee family for a while.