Capital Gains Tax On Gift Of Garden Land

[Johnny Jekyll]

Would anyone be able to fill in a few gaps or confirm my hunches regarding capital gains tax.

 

My parents own a house (mortgage free) worth about £650k. The land is about 1/4 acre in size. It has been their principle private residence since 1984. They do not own any other property. The house has a garden big enough to build a second house on, and my parents have successfully gained planning permission to build the house. Our plan is now for my parents to gift me the garden land and I am going to build the house for my family and I to live in as my own principle private residence.

 

I now understand fully about inheritance tax and the 7 year rule, and also that stamp duty will not be due because it’s a gift. But may I ask:

 

1) Is either myself or my parents subject to capital gains tax at all? My previous questions and hunches are now no because:
a) They are gifting me part of their PPR to be my PPR, and:
b) I will be selling my current property (the only property I own) during the build process. Which should be fine because I believe I would need to sell my current property within 18 months from the point where the new house is finished before I’m liable for CGT.

 

Of course, best to check if I’m correct on this. Furthermore, may I ask:

 

2) When is the best time to transfer the land? I’m thinking ASAP to get the 7 year IHT clock ticking.

 

3) What are the actual steps to transferring the land into my name (e.g. transfer at land registry / notifying HMRC)? I'm presuming it can be transferred into both mine and my wife's name (tenants in common) as we will jointly own the house together.

 

4) I’ll probably need a professional to help with the land transfer as I’ve never done it before. What type of professional do I actually need? And what are the typical charges for this? I’m based in the South East.

 

Thanks very much in advance.
 

[PeterW]

You can do a land transfer yourself - buy an online map to the correct scale from one of the planning map portals and draw a line on it...

 

You then need a TP1 form to complete the transfer from here

 

Submit the additional form and pay the fee...

 

That's it... nothing else to it, unless you want to pay a solicitor £500 to do 10 minutes work..??

[Johnny Jekyll]

9 minutes ago, PeterW said:

You can do a land transfer yourself - buy an online map to the correct scale from one of the planning map portals and draw a line on it...

 

You then need a TP1 form to complete the transfer from here

 

Submit the additional form and pay the fee...

 

That's it... nothing else to it, unless you want to pay a solicitor £500 to do 10 minutes work..??

 

Thanks very much Peter. Very kind of you.

Am hoping for some similarly excellent answers to my other questions.

Have a bunch of other more interesting actual build questions ready to post on the forum after this.

It's a great place for people like me who are about to embark on their first self build.

[ragg987]

Re IHT, your parents' estate will only be liable if the total value exceeds £1m. (This full £1m figure will apply from 2020/21). So this may not be a major concern if the £650k house is the major asset. Allowance is £325k per person plus £175k for primary residence, per parent. If I understand it, provided parent 1 passes on the whole estate to parent 2, then parent 2 can benefit from double the allowance when they pass it on.

 

Them gifting you the land might be more troublesome from a CGT perspective. At point of transfer, they will come under jurisdiction of CGT at the open market value of the land. So if the market value is above 2 x £11,700 allowance (assuming they do not use the allowance elsewhere), they become liable for tax. The 7 year rule only applies to IHT - separate to CGT. The land "sale" also brings SDLT into consideration - tax is payable if the value exceeds the £150k nil band.

 

Once you own the land, then you might also come into a CGT liability. I am not clear how this might work, I guess if you move from one main residence to another within the allotted time it should be OK, however in this case you are buying land and not a house so do check on this aspect. Also, how likely that you can build and move in within 18 months of the transfer of the asset - it is possible, but might be tight.

[newhome]

There is a similar thread here. Not sure if you’ve read this one?

 

 

 

[Jeremy Harris]

It's too late now, but if they had gifted you the land before getting PP then the value would almost certainly have been below the SDLT threshold and may well have been below the CGT threshold as well, as getting PP usually uplifts the value of land by somewhere between 50 and 100 times.  Probably something that's worth noting for others in a similar situation, though, so worth mentioning.

[Temp]

1 hour ago, ragg987 said:

Them gifting you the land might be more troublesome from a CGT perspective. At point of transfer, they will come under jurisdiction of CGT at the open market value of the land. So if the market value is above 2 x £11,700 allowance (assuming they do not use the allowance elsewhere), they become liable for tax. The 7 year rule only applies to IHT - separate to CGT. The land "sale" also brings SDLT into consideration - tax is payable if the value exceeds the £150k nil band.

 

 

Does that (CGT) apply even if the property is still part of their principle private residence?

Edited October 17, 2018 by Temp

[nod]

You need to be very careful 

My friends father wanted to gift him and his sister a barn to make two homes and was told if he did he may be liable for tax on the two completed property’s 

Crazy 

After nearly twelve months a wrangling They consulted a specialist company that sorted out the planning and any liability’s 

Though it may be different with an exhibiting building 

[newhome]

21 minutes ago, Temp said:

 

Does that (CGT) apply even if the property is still part of their principle private residence?

 

No I don't believe it should. 

 

2 minutes ago, nod said:

You need to be very careful 

My friends father wanted to gift him and his sister a barn to make two homes and was told if he did he may be liable for tax on the two completed property’s 

Crazy 

After nearly twelve months a wrangling They consulted a specialist company that sorted out the planning and any liability’s 

Though it may be different with an exhibiting building 

 

If the barns weren't part of the PPR (as in the back garden and and the whole PPR area less than 0.5 hectares) then CGT would be due I imagine just as it would be due if you gifted a second home. Similarly if you gifted land that wasn't part of your main house then CGT would be due. 

 

[Temp]

Bit of googling found this...

https://www.samconveyancing.co.uk/news/conveyancing/gifting-property-4-ways-to-gift-your-property-2928

 

Which suggests there are different ways to transfer the property and there might be differences in the tax treatment.

 

Edited October 17, 2018 by Temp

[nod]

58 minutes ago, newhome said:

 

No I don't believe it should. 

 

 

If the barns weren't part of the PPR (as in the back garden and and the whole PPR area less than 0.5 hectares) then CGT would be due I imagine just as it would be due if you gifted a second home. Similarly if you gifted land that wasn't part of your main house then CGT would be due. 

 

It’s still so wrong 

Both he and his sister and partners had sold there homes to fund the build and set statics up on the farm Exspectingvto be in them for twelve months max 26 months later they moved into there new homes 

No tax dodge there parents were just trying to help them 

There are some very harsh tax laws

[ragg987]

1 hour ago, Temp said:

 

Does that (CGT) apply even if the property is still part of their principle private residence?

You might be right. In my mind the grey area is that PP makes the land valuable as a separate property, not as part of the main residence. Not saying I am right, just how I read it.

[Johnny Jekyll]

3 hours ago, Temp said:

Bit of googling found this...

https://www.samconveyancing.co.uk/news/conveyancing/gifting-property-4-ways-to-gift-your-property-2928

 

Which suggests there are different ways to transfer the property and there might be differences in the tax treatment.

 

Thanks everyone, and for this link Temp. In the Tax Implications section at the bottom, it states:

 

HMRC have stated that parents may still be liable to Capital Gains Tax if the property being given is their second home. The only way to avoid this is via the Private Residence Exception (Principle Place of Residence), meaning the property has been/is occupied by the parent as their main home.

 

So I Googled Private Residence Exception a bit more, and found / read through the government page here:

 

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2017--2 

 

It seems my parents are entitled to full CGT relief where all the following conditions are met (which they all are):

1) The dwelling house has been my parents only and main residence throughout their period of ownership.
2) My parents have not been absent other than normal holidays over the years.
3) The garden including the buildings on them are not greater than the permitted area (which is half a hectare).
4) No part of their home has been used exclusively for business purposes during their period of ownership.

 

I'm probably going to check with a tax adviser, but any further comments (including agree or disagree) are much appreciated?

Edited October 17, 2018 by Johnny Jekyll

[Temp]

I half remember that 20 years ago the tax man would claim cgt if you got pp to build in the garden of your house before selling that bit off. I think this policy was abandoned back then to try and increase the number of plots and houses available.

[Temp]

Found a good article here...

 

https://www.homebuilding.co.uk/how-to-build-a-new-home-on-a-garden-plot/

 

Suggests they won't face cgt unless the plot is on something like a paddock rather than garden.

[newhome]

23 minutes ago, Temp said:

Found a good article here...

 

https://www.homebuilding.co.uk/how-to-build-a-new-home-on-a-garden-plot/

 

Suggests they won't face cgt unless the plot is on something like a paddock rather than garden.

 

That's certainly what I read on a specialist tax forum, ie if it's in the curtilage of the garden of the PPR and under 0.5 hectares in total then it's not applicable, but if larger or on land designated agricultural, paddock etc even if adjoining the house and garden then it is applicable. 

 

 

[Johnny Jekyll]

Just read that article thanks guys. I'm leaning more and more towards Private Residence Exception and being clear of CGT. I've posted on a tax forum and also have approached a professional as well, so will hopefully get a definitive answer soon to post here.

[newhome]

@Johnny Jekyll there has been a recent judgment by the Upper Tribunal of the Tax and Chancery Chamber that calls into question when a property can count as a PPR. This may be relevant for those people who hold plots of land that they later wish to build on and become their PPR. Have a read here. Might be worth your parents delaying the transfer until you are ready to start your build as if you complete within 2 years you may not be liable for CGT but best to take advice. 

 

 

 

[Johnny Jekyll]

@newhome thanks very much will have a read, cheers