Extending then dividing house - tax implications.
Discussion
We are thinking about extending our house and then dividing it into two properties. We will be engaging an architect to draw up the extension plans and negotiating with planning. However the issue of tax cropped up yesterday on the Gardens and DIY forum so thought I'd better go through the relevant threads and get a gist of it. Can someone be kind enough to give my immediate thinking a yay or nay before I do more research and talk to a tax expert:
1. When the house is split both properties attract CGT due when, and only when a property is sold,
2. CGT is calculated on the perceived value of the two properties when they are created - not backdated to the original house purchase price in 1992,
3. From a tax perspective which end of the house do we extend; the one to sell or the one we intend to reside in?
Is that roughly ok? The house has never been let out and only residence since 1992. On a residential mortgage but that can be changed.
Thank you.
1. When the house is split both properties attract CGT due when, and only when a property is sold,
2. CGT is calculated on the perceived value of the two properties when they are created - not backdated to the original house purchase price in 1992,
3. From a tax perspective which end of the house do we extend; the one to sell or the one we intend to reside in?
Is that roughly ok? The house has never been let out and only residence since 1992. On a residential mortgage but that can be changed.
Thank you.
If you split a single property and one one part of the property no longer remains your main residence, full Capital Gains Tax main residence relief will only apply to that part of the property which remains your main residence.
The other part of the property which is no longer your main residence will receive some Main Residence relief on a time apportioned basis as it had been your main residence for a percentage of the time you have owned it.
There are some cases where a property which is 100% your Main Residence will not be eligible for full Main Residence relief - for instance if there is a large area of land surrounding the house, or there are substantial non-residence type buildings on the land on which the main residence sites (out houses, workshops, stables etc) .
You need to know the detailed rules surrounding Capital Gains Tax on a Main Residence.
The other part of the property which is no longer your main residence will receive some Main Residence relief on a time apportioned basis as it had been your main residence for a percentage of the time you have owned it.
There are some cases where a property which is 100% your Main Residence will not be eligible for full Main Residence relief - for instance if there is a large area of land surrounding the house, or there are substantial non-residence type buildings on the land on which the main residence sites (out houses, workshops, stables etc) .
You need to know the detailed rules surrounding Capital Gains Tax on a Main Residence.
.Julia121 said:
We are thinking about extending our house and then dividing it into two properties. We will be engaging an architect to draw up the extension plans and negotiating with planning. However the issue of tax cropped up yesterday on the Gardens and DIY forum so thought I'd better go through the relevant threads and get a gist of it. Can someone be kind enough to give my immediate thinking a yay or nay before I do more research and talk to a tax expert:
1. When the house is split both properties attract CGT due when, and only when a property is sold,
2. CGT is calculated on the perceived value of the two properties when they are created - not backdated to the original house purchase price in 1992,
3. From a tax perspective which end of the house do we extend; the one to sell or the one we intend to reside in?
Is that roughly ok? The house has never been let out and only residence since 1992. On a residential mortgage but that can be changed.
Thank you.
Hi OP1. When the house is split both properties attract CGT due when, and only when a property is sold,
2. CGT is calculated on the perceived value of the two properties when they are created - not backdated to the original house purchase price in 1992,
3. From a tax perspective which end of the house do we extend; the one to sell or the one we intend to reside in?
Is that roughly ok? The house has never been let out and only residence since 1992. On a residential mortgage but that can be changed.
Thank you.
What is the intended us for both properties after extension and splitting?
A friend of mine did this years ago with the intention that, once he and his wife passed away, the house could be quite easily split between two of his kids. If they're both going to be domestic dwellings/not used for business I can't see why there would be ANY tax implications.
Slightly different scenario, but something along these lines might work.
Someone fairly local built another house in their garden. They then moved into that house and sold their original house. No CGT to pay as that had been their main residence. 3 years later they sold the new house and moved away from the area - again, no CGT to pay as that was their main residence.
Not entirely sure how that would work with what is effectively a single house though.
Someone fairly local built another house in their garden. They then moved into that house and sold their original house. No CGT to pay as that had been their main residence. 3 years later they sold the new house and moved away from the area - again, no CGT to pay as that was their main residence.
Not entirely sure how that would work with what is effectively a single house though.
Thank you everyone and sorry I couldn't get back to update earlier.
Steve H. no need to apologize. Alas I'm a big offender too....
Eric MC. Thank you, I didn't realize it was such an in depth area and confirms my suspicions that it's best not left to this layman's meddling. Never thought the land around the house was taken into consideration. Learn something new everyday on PH!
rockin. I do agree, needs an accountant well versed in this area to guide us.
Countdown. We're acting quite mercenary actually. Only a couple of properties down here and we travel a lot so need some people down here whilst away to keep an eye on the place. The house and land is too big as is but close to transport links so useful keeping a small place here.
omniflow. Interesting!
Clearly it's not as simple as just slice in two and run off to Monte Carlo with the cash. I'll talk to an accountant who is well versed in this area. If anyone knows of someone who can do this then I'd like to offer it to a PH'er first so be lovely to hear. Many thanks
Steve H. no need to apologize. Alas I'm a big offender too....
Eric MC. Thank you, I didn't realize it was such an in depth area and confirms my suspicions that it's best not left to this layman's meddling. Never thought the land around the house was taken into consideration. Learn something new everyday on PH!
rockin. I do agree, needs an accountant well versed in this area to guide us.
Countdown. We're acting quite mercenary actually. Only a couple of properties down here and we travel a lot so need some people down here whilst away to keep an eye on the place. The house and land is too big as is but close to transport links so useful keeping a small place here.
omniflow. Interesting!
Clearly it's not as simple as just slice in two and run off to Monte Carlo with the cash. I'll talk to an accountant who is well versed in this area. If anyone knows of someone who can do this then I'd like to offer it to a PH'er first so be lovely to hear. Many thanks
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