How to establish a "purchase price" for a self-build house in order to later calculate the gain on capital

[JGG82]

Hi,

The situation:

- I'm Canadian, non-UK resident (more than 5yrs)

- I'll never use this property as my primary residence.

- I am doing a self-build at in Kingsburgh, IV519UT

 

 

I started to read about Capital Gain taxes in the UK.  I understand the calculation is usually straight forward sell price minus purchase price minus fees and improvements.  However, with a self-built, there is a whole lot of value that I brought in that is not on any receipts. 

 

 

I've realised that as a non-UK resident my future capital gain tax when I sell this second-home/investment property in Kingsburgh will be based on the purchase value of the house.  As this is a self-build property, there is no easy way to determine the "purchase price".  I've been reading and I'm thinking that obtaining a RICS evaluation of individual new-built at the time the house finishes to be under construction (when it starts becoming habitable), might be an option to establish a "purchase price".

https://www.rics.org/content/dam/ricsglobal/documents/standards/valuation_of_individual_new_build_homes.pdf

 

I am nearing the end of my build and would like to ensure I have everything I need in order to be able to minimise capital gain taxes (and paperwork issues)  when I choose to sell this property in the future.

In short, as anyone experience on a way to establish a "purchase price" for a self-build home subject to capital gain when they sell the property.  I guess anyone with a self-build home that is not using it as a primary residence for the entire length of stay will have this kind of problem.

 

Thank you for your thoughts on this

[ProDave]

When I did mine, I literally added ALL the costs of buying the plot, legal fees, planning and design fees, build costs etc etc to get the total price I had paid.

 

I was never asked to justify it, but I worked on the basis if questioned that was a verifiable amount and telling the truth.

 

If you get a surveyors figure, then that may be more, or less, than what it actually cost you.

[nod]

We’ve just sold our firs self build three years after completion 

and made a profit of 400k As it was our main residence No capital gains is applicable 

 

[Temp]

I asked ChatGPT and it said ...

 

Quote

 

If the development is considered an investment, CGT applies. For non-residents, CGT on UK property has evolved:

 

Residential Property: Since April 6, 2015, non-residents are liable for CGT on gains from UK residential property. The gain is typically calculated from the property's market value as of April 5, 2015, unless an election is made to use the original acquisition cost. 

 

 

You would hope the value at completion is more than the cost to build so that might be a better choice if it allowed. 

 

However ChatGPT sometimes makes up replies so you should seek professional advice.

 

Reminder: you only have 60 days from the sale to report it and pay up but i believe you can submit revised figures later.

[Temp]

Think I better post its full reply..

 

Quote

 

As a non-UK resident involved in building and selling a house in the UK, the tax implications depend on whether your activities are considered a trading venture or an investment.

 

Trading Activity:

 

If your property development is deemed a trading activity—characterized by buying land, constructing a property, and selling it for profit—it is treated as a trade. In this case, profits are subject to UK Income Tax rather than Capital Gains Tax (CGT). Non-residents conducting trade in the UK through a permanent establishment are liable for UK Income Tax on profits arising from that trade.

 

Investment Activity:

 

If the development is considered an investment, CGT applies. For non-residents, CGT on UK property has evolved:

 

Residential Property: Since April 6, 2015, non-residents are liable for CGT on gains from UK residential property. The gain is typically calculated from the property's market value as of April 5, 2015, unless an election is made to use the original acquisition cost. 

 

Non-Residential Property: From April 6, 2019, CGT extended to include all UK property types. For non-residential property, the gain is usually calculated from the property's market value as of April 5, 2019. 

 

 

Valuation for CGT:

 

To determine the taxable gain:

 

1. Establish the Acquisition Cost: This is the property's market value at the relevant rebasing date (April 5, 2015, for residential property; April 5, 2019, for non-residential property) or the actual purchase price if acquired later.

 

2. Calculate the Disposal Proceeds: This is the amount received from the property's sale.

 

3. Deduct Allowable Expenses: Expenses such as improvement costs and selling fees can be deducted.

 

4. Compute the Gain: Subtract the acquisition cost and allowable expenses from the disposal proceeds.

 

Reporting and Payment:

 

Non-residents must report the disposal and pay any CGT due within 60 days of the property's conveyance. 

 

Recommendation:

 

Given the complexities and potential for significant tax liabilities, it's advisable to consult a UK tax professional to ensure compliance and optimize your tax position.

 

 

 

 

[SBMS]

7 hours ago, JGG82 said:

Hi,

The situation:

- I'm Canadian, non-UK resident (more than 5yrs)

- I'll never use this property as my primary residence.

- I am doing a self-build at in Kingsburgh, IV519UT

 

 

I started to read about Capital Gain taxes in the UK.  I understand the calculation is usually straight forward sell price minus purchase price minus fees and improvements.  However, with a self-built, there is a whole lot of value that I brought in that is not on any receipts. 

 

 

I've realised that as a non-UK resident my future capital gain tax when I sell this second-home/investment property in Kingsburgh will be based on the purchase value of the house.  As this is a self-build property, there is no easy way to determine the "purchase price".  I've been reading and I'm thinking that obtaining a RICS evaluation of individual new-built at the time the house finishes to be under construction (when it starts becoming habitable), might be an option to establish a "purchase price".

https://www.rics.org/content/dam/ricsglobal/documents/standards/valuation_of_individual_new_build_homes.pdf

 

I am nearing the end of my build and would like to ensure I have everything I need in order to be able to minimise capital gain taxes (and paperwork issues)  when I choose to sell this property in the future.

In short, as anyone experience on a way to establish a "purchase price" for a self-build home subject to capital gain when they sell the property.  I guess anyone with a self-build home that is not using it as a primary residence for the entire length of stay will have this kind of problem.

 

Thank you for your thoughts on this

I’m pretty sure it’ll be treated as a trading activity which means you’ll fall under income tax not capital gains. If you’ve purchased land, built a house and are selling it brand new you’re effectively a developer and therefore this is trade. 
 

might have been prudent to have done the transaction inside a limited company but if

youve done this with personal funds I think any gains will be treated as income and taxed at your marginal rate. You’ll also have to pay national insurance on this net income.

 

You could also rent out the property for a ‘bit’

And then sell. CGT might be justified then as you could argue your intention was investment not trade. Weirdly I think taxation treatment here is subject to your ‘intention’ and what can reasonably be inferred as to what you intended to do.  

[G and J]

I believe the calculation of the gain will be simply sale price minus costs.  
 

i.e. costs means the total of all purchases and fees and contracts.  I also believe that your own time and effort will be costed at zero.  
 

The fact that you built a house equivalent to some notional value if purchased as is is irrelevant.  
 

Sorry.  
 

The good news is you are only taxed when you’ve made a profit and it’s only a percentage of that profit. Other countries are worse, I’m told.