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If a person builds a house in the (rather large) garden of…

If a person builds a...
If a person builds a house in the (rather large) garden of his MAIN RESIDENCE and then sells the house will he be liable to Capital Gains Tax on the sale of the house he has build.
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Answered in 6 minutes by:
3/22/2018
Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,041
Experience: Adjunct Professor
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I'm Carter, I'm a CPA and can help you with this.

The new home will be considered a separate residence.So, he would need to treat that as his main home for the 2 of 5 years in order to avoid most of the capital gains. If he has not, then he will be liable for capital gains taxes.

Let me know if you need anything else. If not, please leave a rating. Thanks!

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Hey! Just wanted to follow up to see if you needed anything else. If not, please leave a rating so I can get credit for helping you out. Thanks!

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Customer reply replied 29 days ago
Thanks Carter,please clarify why he will not avoid ALLthe Capital Gains Tax if he leaves in it for a period of 2 to5 years.
Customer reply replied 29 days ago
Also,will the land that the house is build upon also be liable to CGT?

If he lives in it, then he will get the exclusion. If it is just a house next to his main residence, then he will not. He can only have one main residence at any given time.

The land is also subject to the capital gain tax.

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Customer reply replied 29 days ago
Therefore if he does live in it as specified,he will be exempt COMPLETELY from any CGT.?If he doesn`t all will be liable to CGT including the land.?

If he lived in it, he'll be able to exclude $250,000 of capital gains ($500,000 if he's married filing jointly).

If he doesn't all will be subject to capital gains including the land.

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Hey! Just wanted to follow up to see if you needed anything else. If not, please leave a rating so I can get credit for helping you out. Thanks!

Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,041
Experience: Adjunct Professor
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Customer reply replied 26 days ago
Hi Carter,just a slight clarification in your reply if you would be so kind-you say he must live in the house 2 to 5 years.My question is will 2 years suffice? Thank you

Yes since that will have been two of the five years.

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Customer reply replied 26 days ago
Thank you for your speedy response,but still a little confused ! If he will get the full relief after 2 years why say 2 to 5 years

It's 2 of 5 years. So if he owned it 10 years, and he lived there 10 and 9 years ago, he does not get it because its not 2 of the past 5 years.

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Customer reply replied 26 days ago
Oh! I see 2 of the last 5 years.Thank you very much for clarifying that!
Customer reply replied 21 days ago
Hi Carter,I note that you`re replies are in $,please confirm that you are aware that I am in the UK and that your answers do apply to the UK.
Thank you

UK rules do not have the 2 of the past 5 years. You just need the following:

  • you have one home and you’ve lived in it as your main home for all the time you’ve owned it
  • you haven’t let part of it out - this doesn’t include having a single lodger
  • you haven’t used part of it for business only
  • the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
  • you didn’t buy it just to make a gain
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Customer reply replied 21 days ago
OMG! Thank you Carter ! It is a good thing I thought to ask about the $ sign as I`ve been giving people the wrong advice.Not your fault I realise but how could we avoid this happening again ?

When you ask just state the country you're in.

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Customer reply replied 21 days ago
You previously advised that the land (his garden) will also be taxable(see below) will this apply in the UK"If he doesn't all will be subject to capital gains including the land."

Yes, the land will also be taxable but it can be excluded if they meet the other rules.

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