The Accountants for Growth

If I sell my garden will I end up paying tax?

If I sell my garden will I end up paying tax?
Learn about the tax implications of selling or developing your garden. With demand for housing on the increase some home owners are selling their garden for development in order to cash in on their property - but will they get stung for tax in the process - read on to find out!
Before you decide to sell your garden or take the decision to develop it yourself you need to assess the taxation implications before making a decision. There are two taxes, income tax and capital gains tax that may come into play.

If the landowner chooses to develop the land, then H.M. Revenue & Customs are likely to consider this as a trade even if the developed area had previously been part of the garden. When the development starts, the building plot will convert from capital to stock at its market value.
In many cases, the home owner will be free from tax under this conversion as they will be covered by principal private residence relief. When the properties are sold, profits from the development will be subject to income tax.

It is more common for the development to be carried out by a house builder who has been sold the land by the original owner; usually it is capital gains tax that applies here, and the owner may be able to claim principal private residence exemption. In order to qualify for principal private residence exemption, the sale must be a dwelling house or part of a dwelling house which is the owner’s main residence, or the sale of land which he has for his own occupation and enjoyment with that residence as its garden up to the permitted area.

So, what qualifies as a garden?

The rules are rather grey here, but the legislation refers to the garden being used for ornament or recreation and not divided off for development. In practice the area should be used for plants, lawns or home-grown vegetables.

The garden is an area of up to 1.23 acres unless the character of the house is compatible with a larger garden. Again, this test is rather subjective and open to opinion and the role of the District Valuer is important here.

Before you jump into a sale or development of your garden, look carefully and the possible taxation pitfalls and make sure that you do not suffer a nasty surprise tax bill.

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