Private Residence Relief and CGT on selling a home with extra land

[AutumnDragon]

We bought our home over 15 years ago and have lived in it continually. It is our only property. We are hoping to sell it this year

From the above I assumed we would get Private Residence Relief when we sold it so would not have to pay CGT. I was looking up CGT for other reasons when I noticed that it states that PRR is only available if the property has less than half a hectare. We have a couple of acres so just over a hectare.

Has anyone had to pay this? Is it based on the increase in value on the whole property or just the land over the half hectare?

I think we can state that the extra land is ornamental or recreational use as part of the property and would be normal for a barn conversion to be set in this amount of space but I got completely lost in reading HMRC website.

I know we need to speak to a solicitor (accountant??) but we aren't at the stage of hiring a solicitor yet so just wanted to understand it better for when we work out the money situation. As in, we're in two minds as to whether to move or not and part of the decision will be based on the cost of moving vs staying put, so this could sway the figures dramatically if we do not get any PRR

Thanks in advance if anyone can explain the above as if to a 5 year old 😁

Oh this is interesting. We are in the process of buying a house with four acres of land. No one has mentioned CGT during the purchase process. I'm now wondering if this is something I need to ask our conveyancer. The land is woodland and all part of the estate, it was purchased by a previous owner back in 1960 or so. Please post back in here if you get some answers from a solicitor and I will ask mine.

Can't help on the tax front, but a couple of acres is less than a hectare not more as there are 2.47 acres to the hectare. So that might help :)

@Fibrous You won't need to pay CGT during the purchase, it will only be when you come to sell it. Definitely something to bear in mind when buying though.

I get that you could have done this, but I asked Claude -

The basic rule
Principal Private Residence (PPR) relief covers your home and grounds up to 0.5 hectares (about 1.24 acres) automatically, including the house itself. You don't need to justify anything within that limit.
Above 0.5 hectares
You can still claim PPR on larger grounds, but you have to demonstrate that the larger area is required for the reasonable enjoyment of the property given its size and character. So it's not disqualified — it just needs justification.
HMRC will look at things like:

• The size and nature of the house itself
• Whether the grounds are in keeping with a property of that type
• Whether the extra land is genuinely part of the residential use rather than, say, investment land or let land

A large country house with extensive gardens would have a stronger argument than a modest semi with a big field attached. The practical reality HMRC tends to be quite resistant to claims above 0.5 hectares and will scrutinise them closely. Cases do get litigated — there's quite a bit of case law on what "required for reasonable enjoyment" actually means, and the courts have interpreted it fairly restrictively.

@Tryingtokeepgoing we have approx 2.75 acres (we need to find out the exact measurement) so this is 1.1 hectares, so we would need to know the uplift on 0.6 acres - how do you even work out how much the land value has increased? I know the whole property increase eg sale cost - purchase cost - improvements, but not how to value just the land

Okay thanks, I have had a look into this and it seems we would pay minimal tax if anything at all. The land is ancient woodland and has protections on it so it's not got much value, as it won't be worth anything to developers. The covenants make it more of a burden than an asset (to most people).

@gotmyselfintoapickle Thanks. I've tried AI but keep coming back to what you have posted. How do we know what is reasonable? Who determines this?

HMRC is a vague as ever. The case studies seem to contradict themselves. One goes on about an equestrian property with 10 acres was not deemed reasonable as the next owner might not have horses!

We didn't even know about this before yesterday and DH is a mortgage advisor so you would have thought he would have heard something from one of his clients!

@Fibrous I'm jealous! If we had ancient woodland I don't think you could make me move.

We have a field. It could be used for agriculture, it could be used for development (but unlikely to get planning). Hence, it could be worth something!

Ah I see. Well then you probably neeed a surveyor at the point that you sell, if you sell. But as a PP has mentioned, there'll be no CGT on purchase - though presumably the vendor has the same issue so perhaps you can establish what they have valued it for for CGT purposes as at least that'll give you the acquistion cost, which will be the basis of any CGT calculation in the future. Don't forget that CGT is in part a tax on inflation, so there will probably be something to pay, even if it's a small amount :)

@AutumnDragon it's woodland on an insanely steep hill (next to an old quarry) - which we think is really cool but the house was on the market for two years with no offers before we offered on it, so clearly most people think we're mad. Although I suspect the main thing putting people off is the huge retaining walls holding the hill back behind the house. We have no kids and it's a single story bungalow so we are just hoping the hill stays upright as long as we do!

Yeah your land sounds a lot more open to interpretation. Anything on the HMRC website seems to be confusing as hell.

You’ll need professional advice. There’s no definitive “if it meets this checklist you won’t owe CGT” and you can’t get a binding decision from HMRC pre-sale. You’ll need expert advice, submit the return after the sale, and HMRC will either accept or challenge it.

Ah ok sorry - I didn’t realise you’d checked already!

I may of checked but it didn't help me understand 😁I have read and reread but I can't work it out.

So, from what @WhatAMarvelousTune says. I will need to sell the property and then tell HMRC and they may or may not charge me CGT. So, totally normal level of service from our dear government.

Does anyone know if I still get PRR on the house and up to .5 hectares, or if HMRC deem me to have too much land, do I lose PRR altogether?

No it’s only on the ‘extra’ bit of land (however you would go about working out the value attributed to that bit 🤷‍♀️)

No you still get it on the rest.

And, as you say “we” I assume this is jointly owned? You and your partner (I’m making assumptions) can both claim your annual exempt allowance on any gain that was found, provided you’ve not used it already on any other gains in the year.

Tbf to HMRC, I can see that they don’t want to get involved in telling people what their tax would be in a variety of situations. That would potentially be quite a lot of work.

Thank you, that's a bit of a relief. I guess we would need to find out how much land went for when we bought it and how much now and that should give us the uplift.

back to internet research 😀

You’d probably need professional valuation advice for that as well, both for the cost (unless you bought it separately to the rest of the house/garden, but if so, that’s unlikely to be exactly the amount over the limit anyway) and for the price now.

You get relief automatically on anything up to half a hectare, even if the total area is bigger. If HMRC decide not to allow you the rest, they take your allowable 0.5 hectare to be the part which is most suitable for occupation and enjoyment with the residence- this is likely to be the closest part.

It's definitely worth trying to claim relief for the whole lot, especially if your house is the sort that often has a few acres with it. Make a note of similar houses locally with similar amounts of land. Phillips v HMRC and Henke v HMRC are worth readiing.

When we sold MILs house we got PPR on all 13 acres. I was a bit surprised but we sold it as a single plot in a single transaction so our solicitor said we ought to qualify. We did keep some money back for the year that HMRC have to challenge the filing but they didn’t. I think having a solicitor make the filing probably helped - HMRC might have looked more carefully at a private individual’s filing I think.

@MrsWobble3 that sounds hopeful.

at the end of the day "in excess" of the permitted area is a subjective assessment based on the facts of the individual case. Yes some precedents have been set by case law, but land >0.5 hectare is "always" going to need professional advice on how to argue that all of it falls within the "permitted area" of a house of that size and character

some examples:
545-650 The ‘permitted area’ | Croner Navigate

https://www.ritchiephillips.co.uk/insights/capital-gains-tax-on-gardens-and-grounds

Definitely get advice. It is complicated and the timeframe is short if you have to do a 60 day CGT return. But get proper advice as it will rest on the facts so you need someone to look at everything.

Thank you, but unfortunately that link requires me to sign in

Thank you, that was interesting.

Does anyone know when this was brought in? We haven't sold for 20 years and can't remember the solicitor saying anything about CGT on our old property, but that was well under the permitted amount so maybe he just handled it all himself.

@AutumnDragon

I've tried AI but keep coming back to what you have posted. How do we know what is reasonable? Who determines this?

I'm an accountant, not a tax consultant, but have come across a few cases like this, some I've handled myself and some more "vague" I've consulted a tax consultant. My conclusion after going through it a few times...

The duck test! If it quacks like a duck and looks like a duck and walks like a duck - it's a duck.

So what is the relationship between the land and the house itself. What is the respective location, what's it used for, etc.??? The facts will determine the outcome.

If it's, say, a large field to one side of a relatively modest house, i.e. unexpected and not really "linked" to the enjoyment of the house, where each part (land and house) could be sold separately and/or used separately, then it's almost certainly not exempt as part of the main residence relief. However, if it's just comprised of a very large wraparound garden, i.e. lawns and flowerbeds to all four sides of the house, then it's almost certainly exempt as part of the main residence relief as it's virtually impossible to separate the land from the house.

Of course, there are lots of "grey" areas in between.

Also depends on the size/nature of the house. It's easier to justify, say, outbuildings with land, such as a stables, garage block, paddock, etc attached to a large country manor house. Not so easy to justify a stables/paddock in the field next to a small bungalow!