Self build - when you split plot from existing property?

[RandomNumb3rs]

I wasn’t sure whether to put this in Property, Legal, or Money, so apologies if it’s in the wrong place.

We are planning a self build on land that is associated with the house we live in (“garden ground” but not attached to the house).

When would we “split” the land from the house?

mMy thinking was that we would get the planning permission first and then separate out the properties. That way we are not subject to capital gains tax on the increase in property value due to planning permission, but can still treat the new plot as “land” for purposes of self build mortgage.

Has anyone been through similar?

Why would you not be subject to capital gains?

I have a friend that has a good plot , they have two 20 something's that wanted to have their own homes . A pair of semi detached houses were built but with the caveat that all three homes could only be sold as a whole. This suits them , but do your homework.

Because in a new build private residence relief applies to both properties. Basically you get 2 years to build the new property, and then 9 months after it completes to sell your old property, before CGT takes effect.

And similarly, CGC doesn’t apply to improvements to your main property, including the granting of planning permission.

However, if you own investment land which then is granted PP, CGT does apply.

I’m just curious as to the timings, if anyone here has done similar before, with regard to the timing of the registration of the new property.

A little similar.

You are asking when to get planning permission such that you reduce your capital gains tax exposure, and when to split the title between the house and garden on the one hand, and the prospective building plot on the other.

This is a complex scenario. Sorry for the long response!

You would be well advised to seek planning, tax and legal advice.

You might want to have the certainty of planning permission on the plot before selling the house. The danger you have recognised is that selling a house on an unsplit title that includes a building plot with planning permission may make you liable to some capital gains tax based on the value of the entire site.

So if the house & all the land is not mortgaged, it might be better to split the title after getting planning permission and before selling the house, so you can claim exemption from capital gains tax (CGT) assuming the house is your principal private residence. You will need legal advice.See HMRC rules

www.gov.uk/tax-sell-home.

CGT would probably not be payable on the retained plot because it remains in your ownership.

If the house is mortgaged, it is not straightforward to split the title before sale because you are potentially reducing the value of the mortgagee’s security. You would also have difficulty securing a self build mortgage on land already mortgaged. If there is sufficient equity it is possible to restrict the mortgage to the house & garden only but you would need a favourable survey and legal support.

I hope this makes some sense! Good luck

Thanks @HogInAManger that made a lot of sense.

I don’t think it’s an uncommon scenario. This article explains it better than I did, particularly under the tax rules section, but still doesn’t address the question of when the split happens.

I do have a planning consultant and a property lawyer, but can’t seem to get a clear answer.

Just in case anyone else stumbles across this thread with the same question - I got the answer from the lawyer.

Most common practice for this scenario is that you keep both properties on the same deeds until the point where you sell the original house, at which point new deeds are created as part of the sale.

Financial advisor/accountant confirmed that in our case (and 90%+ of all cases) CGC would not apply / PRR would apply, so no giant bills.