Tax Self Build

Tax Issues Around Property Ownership

Q - We are looking to buy a building plot where the previous house burnt down. Will there be stamp duty to pay on this? We are also trying to find a cost per square metre for a new build five-bedroom thatched house in rural north Devon on level ground.

A - You would be almost certain to have to pay stamp duty on the transaction but there may be an exception for damaged properties - you need to ask your solicitor or accountant about this. Current building costs are running between £900 and £1200 per square metre depending upon the specification level plus about £15k for drains, fencing, paths, drives and the like plus, of course, the cost of the land and fees.

Q - We acquired a plot of land a couple of years ago and since then we have gained full planning permission. We are thinking of selling the land now and wonder whether we will incur any taxes or charges?

A - Provided that the buying and selling was not intended as a commercial activity directly aimed at making a profit, you should not be liable for any taxes. You will, of course, have to pay tax on the interest earned on the proceeds of the sale when deposited in a bank.

Q - We are getting towards the final part of our build with all of the services connected but we are having problem selling our present home so we cannot yet move in. In the meanwhile, we would like to stay overnight occasionally to finish the carpentry and painting. Can you please advise us on whether we will have to pay council tax on the new property if we do this?

A - Council tax is normally due after completion of the work and after an assessment has been made by the council valuation officer who decides in which band the house is to be placed. So if there is still work to be done it can't be considered as being complete. But in any case, I would have thought that informal camping in your own house would not count as occupying it. But I would check with your local council to make sure.

Capital Gain's Tax on Self Builds

Q - We have just finished my first self-build and we have lived here for three months. Unfortunately, we are not really settled and wish to move on but the prospect of having to make a payment for the CGT worries me. My accountant wants me to stay for at least a year but that doesn't appeal. How do we stand on this?

A - There is a certain amount of ambiguity in the rules dealing with Capital Gains Tax. The spirit of the system is that you should not be building for profit or acting commercially. Theoretically, you need only need live in the property for a day to be exempt provided that it is your main place of residence at the time of the sale. In practical terms, by the time you put the house on the market, find a buyer, exchange and complete contracts it could be take 4 to 6 months in addition to the time you have already lived there so you are probably worrying unduly.

The Revenue have a website on this subject www.inlandrevenue.gov.uk/cgt and there is wealth of information on there that should help you. In particular, you should obtain a copy of leaflet CGT/FS1 CGT A Quick Guide to CGT. But for peace of mind, why not ask the Revenue direct?

Q - My father-in-law brought a 28 acre derelict farm five years ago and he asked me to help build it into a family-run livery stables. This took approximately three years and the deal was that he would sell me one of the derelict cottages for £15,000. The work is now complete and I am still waiting for him to fulfil his side of the bargain!

The latest excuse is that he is worried that if he sells the cottage for the agreed price he or I will be liable for a huge capital gains bill. Is this true or is he just stalling again?

A - Your father-in-law will not be liable for Capital Gains Tax if the house he is selling to you is his principal residence at the time of the sale. But if he is not living there or if the cottage is still derelict he may be liable depending upon other factors. Ring your local tax office and they will advise you. Also visit the Revenue's website www.inlandrevenue.gov.uk/cgt - there is a lot good information there and ask for their free leaflet CGT/FS1 CGT A Quick Guide to CGT.

Q - I am considering either selling part of my garden as a plot, or actually building a house on it myself for selling on. Would I be liable for capital gains tax?

A - You would not be liable for CGT if the house you are selling is your principal residence at the time of the sale. So you could build a house in your garden, live in it and sell on without incurring the tax. Have a look at www.inlandrevenue.gov.uk/cgt - and ask for a copy of their free leaflet CGT/FS1 CGT ‘A Quick Guide to CGT'.

Other legal Issues with Self Build Homes

Q - Is there a legal reason why a group of ten people cannot share a self-build mortgage?

A - I don't think that there is any legal reason for not sharing a mortgage but more importantly what would be the attitude of the money provider. I believe that they would prefer a lead borrower and the others made their own private arrangements with him or her. You should sound out some money providers for their views and, if you go down this route, you must consult a solicitor to have any agreement drawn up properly.

Q - I own a bungalow and I will be shortly starting alterations to it. I am planning to extend upwards to make into a house and refurbish the existing building. However, I am uncertain about insuring the building for future mortgage purposes. A structural warranty seems out of the question because it is part old and part new work. Should I obtain some form of insurance and what would the costs be?

A - It may be possible to obtain a structural warranty for your project depending upon the proportion of the new work to the old. Contact Self Build Zone at www.selfbuildzone.com for more information on this subject and in some cases you can obtain cover on line.



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