Land and CGT question
Discussion
Looking for guidance please...
My mother and her husband own and live in a bungalow that sits on a reasonable size plot.
For health reasons they wanted to sell the whole plot with bungalow to a developer who is hoping to build 3-4 detached 4 bed homes. However he's messed them around for the last 18 months.
So a new neighbour moves in and they get chatting - he also happens to be a developer...
Anyway he proposes that they identify a boundary line (splitting their plot in to two) and he will knock down their existing house (to be fair 5 litres of petrol and a match is the best thing for it) and rebuild them a brand new place at no cost if they sign over the other half of land to him so that he can build a second house which he and his wife will move in to and he will sell on place he's just moved in to.
Questions..
I believe CGT is payable on the plot that they propose to "give" to him... but how would CGT be calculated as they originally inherited the house some 30 years from a lady who they helped out in the latter years of her life?
There is no planning permission at the moment although they believe that the council will approve it as 3 other houses have been built over the last 15 years off a ransom strip that is associated with the plot so what sort of value would the HMRC put on the land?
Would they be able to combine their personal CGT allowances to offset the tax?
Or would they be better off selling the whole plot to the developer and then immediately buying back the "off plan" home from the developer?
If they are looking for advice which way should they go? Solicitor, Accountant or Financial Advisor?
NB - they have little to no savings and the only income they have are their pensions, which are not great, (state pension and small workplace pensions)
Roughly speaking the previous developer was indicating £500k as the purchase price for the whole of the plot.
Lots of questions and hopefully someone will be able to point out the best course of action...
My mother and her husband own and live in a bungalow that sits on a reasonable size plot.
For health reasons they wanted to sell the whole plot with bungalow to a developer who is hoping to build 3-4 detached 4 bed homes. However he's messed them around for the last 18 months.
So a new neighbour moves in and they get chatting - he also happens to be a developer...
Anyway he proposes that they identify a boundary line (splitting their plot in to two) and he will knock down their existing house (to be fair 5 litres of petrol and a match is the best thing for it) and rebuild them a brand new place at no cost if they sign over the other half of land to him so that he can build a second house which he and his wife will move in to and he will sell on place he's just moved in to.
Questions..
I believe CGT is payable on the plot that they propose to "give" to him... but how would CGT be calculated as they originally inherited the house some 30 years from a lady who they helped out in the latter years of her life?
There is no planning permission at the moment although they believe that the council will approve it as 3 other houses have been built over the last 15 years off a ransom strip that is associated with the plot so what sort of value would the HMRC put on the land?
Would they be able to combine their personal CGT allowances to offset the tax?
Or would they be better off selling the whole plot to the developer and then immediately buying back the "off plan" home from the developer?
If they are looking for advice which way should they go? Solicitor, Accountant or Financial Advisor?
NB - they have little to no savings and the only income they have are their pensions, which are not great, (state pension and small workplace pensions)
Roughly speaking the previous developer was indicating £500k as the purchase price for the whole of the plot.
Lots of questions and hopefully someone will be able to point out the best course of action...
If it’s their main residence as defined by HMRC, why should CGT be applicable?
If the property is split, then the bit they aren’t living in/on would become liable but in the circumstances there’s be no gain as its starting cost would be its current value.
Just my thoughts, I stand to be corrected.
If the property is split, then the bit they aren’t living in/on would become liable but in the circumstances there’s be no gain as its starting cost would be its current value.
Just my thoughts, I stand to be corrected.
"rebuild them a brand new place at no cost"
That sounds like a minefield. Where do they stay in the meantime? What if there are extensive delays? What if the new house isn't as expected? Etc. Would be bad enough sorting that out under any circumstances, but when it's your neighbour you have to deal with...
Sell it to him (or anyone) for the best deal you can get, then buy somewhere else, would be my view.
That sounds like a minefield. Where do they stay in the meantime? What if there are extensive delays? What if the new house isn't as expected? Etc. Would be bad enough sorting that out under any circumstances, but when it's your neighbour you have to deal with...
Sell it to him (or anyone) for the best deal you can get, then buy somewhere else, would be my view.
Many thanks for chipping in, I know it sounds a bit odd and to be fair my view was exactly the same as rgf100 & Herewego - sell the whole plot with planning permission and find somewhere else...
But speaking with my mother this week she says they don't want to leave the village where they've lived for the last 28 years (loss of friends baloney etc).
And whilst the build would be going on she'd stay at my sisters (who lives 10 miles away) and her husband would kip down in his workshops to keep an eye on his lathes and all of the engineering equipment he uses.
They are an odd couple, he built his workshops from the ground up and they are of a better quality build than the existing house and their only means of transport is a 1950s Massey Ferguson tractor which he rebuilt from a pile of scrap metal....
It seems they are keen to split the land and take that route - I think I'll advise they engage solicitor who is experienced in conveyancing and land sales....The big issue for them is the CGT implication if applicable.
Cheers
SS
But speaking with my mother this week she says they don't want to leave the village where they've lived for the last 28 years (loss of friends baloney etc).
And whilst the build would be going on she'd stay at my sisters (who lives 10 miles away) and her husband would kip down in his workshops to keep an eye on his lathes and all of the engineering equipment he uses.
They are an odd couple, he built his workshops from the ground up and they are of a better quality build than the existing house and their only means of transport is a 1950s Massey Ferguson tractor which he rebuilt from a pile of scrap metal....
It seems they are keen to split the land and take that route - I think I'll advise they engage solicitor who is experienced in conveyancing and land sales....The big issue for them is the CGT implication if applicable.
Cheers
SS
How large is the plot? They are effectively selling part of their garden in return for the (cost of) the new house build, so as long as the plot (total plot, not the part they are selling) is less than 1.2 acres, then Principal Private Residence relief (PPR) applies and there is no CGT liability. If the plot is larger than that, it gets more complicated.
herewego said:
How about asking an architect to design the development and obtain planning permission, then sell it to a developer.
Good idea, wrong execution. Get a town planner to do it. That’s what they do. An architect would charge a small fortune, not fully understand the process and take forever. Outline planning permission by a planning consultancy is bad far your best option.
BertBert said:
It might be a good idea, but that's not what the couple want to do. They want a new house on their land, selling part of the land to fund it.
I was replying to the other guy about not using an architect. That’s why I quoted his words.Flumpo said:
Outline planning permission by a planning consultancy is bad far your best option.
Apologies I should have made it explicitly clear by saying dear xxx, separate to the original cgt question xxx. Also op this info may be of interest if you chins your mind on your approach.
If the couple want to lose significant money by doing it their way that’s their business and not what I was discussing. If anyone is considering getting planning permission either outline or full a planning consultant is by far the best route.
LeighW said:
How large is the plot? They are effectively selling part of their garden in return for the (cost of) the new house build, so as long as the plot (total plot, not the part they are selling) is less than 1.2 acres, then Principal Private Residence relief (PPR) applies and there is no CGT liability. If the plot is larger than that, it gets more complicated.
Hmm that sounds promising - I'm not great at converting metres to acres but this looks like it's somewhere between a third and a half... on that basis I think they need to get a good solicitor involved...Although by the sound of things a town/council planner came out on site this morning... The guy wanting to take on the project arranged it...
Here's the Google view which shows the plot with the boundary as I can best recall it ...the lane going up to the 3 houses behind is also theirs ...
My 2p.
Other developer was talking 500k.
How big is the house going to be and will it cost anywhere near that to build?
plus a big fancy new house won't pay for it's self it terms of bills and other associated stuff.
You defo need to solicitor up for this.
get the land valued with and without planning and try and get some cash in the bank for them too I think.
Other developer was talking 500k.
How big is the house going to be and will it cost anywhere near that to build?
plus a big fancy new house won't pay for it's self it terms of bills and other associated stuff.
You defo need to solicitor up for this.
get the land valued with and without planning and try and get some cash in the bank for them too I think.
Flumpo said:
Good idea, wrong execution. Get a town planner to do it. That’s what they do. An architect would charge a small fortune, not fully understand the process and take forever.
Outline planning permission by a planning consultancy is bad far your best option.
Interesting point Flumpo - I have a similar issue. Mind if I pick your brains?Outline planning permission by a planning consultancy is bad far your best option.
Have had a couple of architects 'round to help get planning approved but the costs are high and somewhat speculative and with lots of disbursements. Some had great ideas but as I'm not developing it or building it personally the niceties of design/finish are unimportant - its just about the layout not the niceties. The architects suggest that it needs to look good and have lots of detail to effectively get planning - however a developer that buys it may have completely different ideas so that its tens of thousands in design potentially wasted. Can a town planner get it through the hurdles just as well then?
Cheers
Seesure said:
LeighW said:
How large is the plot? They are effectively selling part of their garden in return for the (cost of) the new house build, so as long as the plot (total plot, not the part they are selling) is less than 1.2 acres, then Principal Private Residence relief (PPR) applies and there is no CGT liability. If the plot is larger than that, it gets more complicated.
Hmm that sounds promising - I'm not great at converting metres to acres but this looks like it's somewhere between a third and a half... on that basis I think they need to get a good solicitor involved...Although by the sound of things a town/council planner came out on site this morning... The guy wanting to take on the project arranged it...
Here's the Google view which shows the plot with the boundary as I can best recall it ...the lane going up to the 3 houses behind is also theirs ...
https://www.gov.uk/government/publications/private...
Looks as though you might be OK. It's an accountant you need for the CGT, not a solicitor.
Slighty off-topic and won’t matter now, but you mentioned they owned a ransom strip, did they get a share of the uplift from the land value for providing access?
On-topic, best option is to enter into a promotion/option agreement if they don’t have cash and buy a new property from proceeds in village. Surely properties are for sale in the village?
On-topic, best option is to enter into a promotion/option agreement if they don’t have cash and buy a new property from proceeds in village. Surely properties are for sale in the village?
Edited by olivebrown on Sunday 18th March 18:28
simonh100 said:
I know the OP is asking about CGT, but my understanding is that your mother and husband may also be liable for Stamp Duty Land Tax (SDLT), even if the new property is a gift.
The neighbour may also be liable for SDLT on the land that he acquires too.
No. An SDLT liability requires consideration to pass. The neighbour may also be liable for SDLT on the land that he acquires too.
I know there are no plans but there must be a basic 1/2/3 bed house/bungalow format that they are after.
First thing I’d do is get a local estate agent to come and give an indication what the new house would be potentially worth. If it’s nowhere near 500k I’d go no further on discussions.
First thing I’d do is get a local estate agent to come and give an indication what the new house would be potentially worth. If it’s nowhere near 500k I’d go no further on discussions.
Gassing Station | Speed, Plod & the Law | Top of Page | What's New | My Stuff