UK Tax

UK Tax Questions? Ask a UK Tax Advisor for answers ASAP

Ask an Expert,
Get an Answer ASAP!

UK Tax
This answer was rated:

Hi Sam, I have an option agreement with my neighbour to buy

part of her garden to...
Hi Sam, I have an option agreement with my neighbour to buy part of her garden to add to a portion of mine to create a development plot. I have been successful in gaining planning permission for a house. If I sold just the plot with planning permission what would be the tax implications? The size of the plot is no bigger than 0.15 acre, and neither garden is larger than 0.40 acre. I have not fenced off the plot just yet although I have started the marketing process.....
Show More
Show Less
Ask Your Own UK Tax Question
Answered in 10 minutes by:
6/16/2013
Sam
Sam, Accountant
Category: UK Tax
Satisfied Customers: 13,978
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax
Verified

Hi

 

Thanks for your question

 

If it was just your plot of land that had previously used as a garden there would be no capital gain position, (because its less than half an hectare) but as this involves you purchasing a neighbors portion of garden to add to your portion, and you have gained planning permission for the whole combined plot, this certain suggests an intent to make a profit from the position, and will not fall under the guise of having just enjoyed the garden as a garden throughout ownership until sale, and I would expect HMRC to view this as a capital gain position.

 

There is no harm writing to the Technical team at HMRC to ask for a ruling on this, but I fear they will advise that this profit will be liable to capital gains, although the first £10,600 will be exempt, the cost to purchase the neighbours plot, can be deducted from the profit, as can the costs to get planning permission and to sell (and a proportion of the purchase value when you initially purchased your property) so it may not be too large of a gain.

 

Thanks

 

Sam

 

 

Ask Your Own UK Tax Question
Customer reply replied 4 years ago

Thank you Sam... I guess the same would apply therefore if I decided to build the property myself..... I presume all costs associated with the build can be offset against the sale, and the net proceeds taxable.


I will contact HMRC to get a ruling.....could I have the address. Also, is there a more tax efficient way of doing this, ie creating a company? Is there a cheaper way of doing any of this?

Hi

 

Yes, thats right, any associated costs should you choose to build yourself would be deductible from the gain made.

 

The address will be your normal tax office, marking both the envelope and the letter for the attention of the Technical team but if you do not have this address to hand then

HM Revenue & Customs
Pay As You Earn
PO Box 1970
Liverpool
L75 1WX

 

If you set up and other vehicle, then you will incur a capital gain just by transferring the land to the limited company, so somewhat defeats the point!

And furthermore if this is just a one off project then it cannot be treated as a trade and therefore not trade income, so you would not be permitted to set up a limited company, or treat this as trade income for income tax purposes.

 

Although there are benefits from being charged corporation tax rates within a limited company, the fact you suffer capital gains just through transferring the land (at market value with planning permission) into the company, and then lose out of the entitlement of the annual exemption allowance (as this is only awarded to individuals) and then defendant on your annul income, should suffer 40% -50% tax on the drawing out of dividends, makes this a very costly exercise and certainly less tax efficient then just having this treated as capital gains - where you get the benefit of the annual investment allowance, and top rate of capital gains tax is 28%

 

So this is not a viable solution I am afraid, nor having it treated as trade income for income tax purposes as a sole trader or partnership.

 

Really, its just the hope that you can argue with HMRC that as the land is less than half an hectare (and you do not build yourself) might you stand a small chance of a ruling that no taxable charge arises.

 

Do feel free to ask any further follow up questions, but if, in the meantime you could rate the level of service received, it would be appreciated, as this ensures I am paid. And any feedback and/or bonus are always most welcome,

 

Thanks

 

Sam

Sam
Sam, Accountant
Category: UK Tax
Satisfied Customers: 13,978
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax
Verified
Sam and 87 other UK Tax Specialists are ready to help you
Ask your own question now
Customer reply replied 4 years ago

..... just one last question, when would 28% capital gains tax be applicable instead of 18%?

Hi

 

This is when your usual annual income is either in excess of £42475 a year, then all the gain is liable to 28% capital gain tax.

But if your income is less than £42475 a year, then any unused basic rate band can allow that same amount of gain to be charged at 18% and any remaining gain at 28%

For example, an annual income of £30,000 would see £12,475 unused basic rate band.

 

So when considering a capital gain the first £12,475 of that gain would be charged at 18% and any further gain at 28%

 

Thanks

 

Sam

Ask Your Own UK Tax Question
Customer reply replied 4 years ago

ouch!

Hi

 

Its still far better than income tax which sees any income over £42475 at 40% and any income in excess of £150,000 at 50%!

 

Thanks

 

Sam

Ask Your Own UK Tax Question
Customer reply replied 4 years ago

I feel better already! Thanks again for your helpful advice... I'll keep your details for the next batch of questions I no doubt will have in the future.

Hi

 

That would be wonderful, take care and enjoy the rest of the weekend

 

Sam

Ask Your Own UK Tax Question
Customer reply replied 4 years ago

oh, just one last one .... and thinking outside the box... could the reduction in the value of my house apply as a "cost"? I think £100k is a figure which might be appropriate.


 


Your too have a good weekend, and thanks for working on a Sunday.


 


 

Hi

 

No, I am afraid not - as

1) Even if this would be permitted, then this would affect the sale of the house not the land and then the house and remaining land will not be subject to capital gains as its covered fully be private residence relief and

2) The actual value of the part of the garden would be a minimal amount anyway, as you are working on its value now, rather than what it was worth when it was purchased and you are already been given the value of the land being developed, as a cost against the capital gain.

 

Thanks

 

Sam

 

 

Ask Your Own UK Tax Question
Customer reply replied 4 years ago

Hi Sam,


 


You might recall our conversation back from June, where I told you I have a planning permission for a house to be built between my house and my neighbour's house. The plot it sits on is made up of two slices of land from both our gardens. I have an option agreement to buy the land from my neighbour so that the plot can be created. I now have a buyer. If I sell/ assign the option agreement to my buyer so that he will be buying my neighbours land directly, will this be sufficient to avoid potential capital gains tax?


 


Hope to hear from you over the weekend if possible.


 


Thanks


 


Peter


 

Hi Peter

 

Thanks for your further question

 

This would serve to

1) potentially create a capital gain to you by transferring the option back to the neighbour AND

2) potentially create a capital gain to your neighbour when they sell to the buyer.(although this would probably be negligible, as the increase in gain between your transfer and the sale, would not see much of a rise in value.

 

Thanks


Sam

Ask Your Own UK Tax Question
Customer reply replied 4 years ago

Good morning, and thanks for the answer Sam,


 


Just to be clear I would be assigning the option to the buyer not transferring it back to my neighbour. Does this make any difference?


 


Hypothetically, if there had been no option agreement in the first place:-


 


1.I obtain planning permission for the house on the two portions of garden


2.a buyer is found for the development


3.a price for the two plots is agreed (after apportioning all costs as a result of the development - obtaining planning permission, architects and planning fees, rebuilding a replacement garage, creating a replacement driveway, clearing the site, putting up a new fence)


4.the buyer purchases the two plots separately from each vendor



.... can it still be viewed that there is a capital gain for one or both neighbours.



And whilst I think of it if the separate sale prices are less than the stamp duty thresholds, wouldn't there be a saving of tax for the buyer?



I know I'm trying to be clever here, but if there's a way of legally processing this sale without the penalty of paying tax I'm open to suggestions.



Thanks



Peter



Hi

 

Thanks for your response

 

 

You asked what the position would be if you assigned/sold the option, so that the buyer could buy directly from the neighbour.

 

Whether this is legally possible to in essence assign it back so that the neighbour sells the land, rather than you I do not know and you would need to seek advise on this.

 

But if it were possible, then there are three sales

1) You forfeiting your right to use the option, which may create a capital gain on the neighbours land

2) Then the neighbour would have a capital gain consideration as you are in essence making the land back to being his land

3) Creating a capital gain on the sale of your land.

 

This is a very complex matter and without the necessary legal expertise (which we UK tax experts do not specialise in property/land law, but tax law) I do not know how this would be viewed in a tax sense.

 

I feel anything you do now, to, in essence, undo the position for you and as a result lessen your own tax burden, is not going to work in your favour with HMRC and its capital gain taxes.

 

Had the option not been granted in the first instance, this would be very straightforward, as you have two sellers selling to one buyer, so each with a capital gain position and also stamp duty.

But whether you can undo the option without it having a position of having ever existed, is the real crux of the matter here. And that is the only way that you could better the position.

 

Thanks

 

Sam

 

 

 

Thanks


Sam

 

 

Ask Your Own UK Tax Question
Customer reply replied 4 years ago

Hi Sam,


 


Thanks yet again... it is rather complex, I'll seek separate legal advise to decide my next move.


 


No doubt we will be in contact sometime in the future.


 


Thanks


 


Peter


 


 

Ask Sam Your Own Question
Sam
Sam
Sam, Accountant
Category: UK Tax
Satisfied Customers: 13,978
13,978 Satisfied Customers
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax

Sam is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Sam

Sam

Accountant

13,978 satisfied customers

26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax

bigduckontax

bigduckontax

Accountant

859 satisfied customers

FCCA FCMA CGMA ACIS

TEAP007

TEAP007

Tax Preparer

759 satisfied customers

Fully Trained Inspector of Taxes / District Inspector/ Team Leader/ Offshore Consultant/ 41 years

Andrew Baker(baktax)

Andrew Baker(baktax)

Personal Tax Adviser

756 satisfied customers

35+ years experience in income tax, CGT, non-residence

berduchwal

berduchwal

Accountant

669 satisfied customers

Qualified accountant and bookkeeper running my own practice since 2008.

Clare

Clare

Solicitor

147 satisfied customers

25 years exeperience as a high street solcitor

Mrs-Tax

Mrs-Tax

Tax Adviser

59 satisfied customers

Law Degree, 19 years in UK Tax.

< Previous | Next >

Related UK Tax Questions
I'm doing the accounts for my sister who owns a micro entity
Hi Pearl, My name is ***** ***** I'm doing the accounts for my sister who owns a micro entity business company. Last year was the first accounting year and I laid an abrieved.online account. I'm about… read more
bigduckontax
bigduckontax
Accountant
FCCA FCMA CGMA ACIS
859 satisfied customers
I have a UK/Australia tax question not social security. I
I have a UK/Australia tax question not social security … read more
bigduckontax
bigduckontax
Accountant
FCCA FCMA CGMA ACIS
859 satisfied customers
You recently (Nov 16th) answered questions in relation to
You recently (Nov 16th) answered questions in relation to CGT on the sale of a holiday home in France, for which many thanks. I do have a few more specific questions re. other allowable costs. These a… read more
taxadvisor.uk
taxadvisor.uk
Accountant and Tax Practitioner
Chartered Certified Accountant - FCCA
3,059 satisfied customers
My father and step mother are both in separate care homes.
My father and step mother are both in separate care homes. They jointly own a house. My father has a state and occupational pension both of which are considered as sole his income by the local authori… read more
taxadvisor.uk
taxadvisor.uk
Accountant and Tax Practitioner
Chartered Certified Accountant - FCCA
3,059 satisfied customers
I wanted to know if a uk limited company could lend me
I wanted to know if a uk limited company could lend me monies to purchase a property. I am not a director of the company … read more
Sam
Sam
Accountant
13,978 satisfied customers
I don't have a social security question. I have a micro
I don't have a social security question. I have a micro entity account question. … read more
taxadvisor.uk
taxadvisor.uk
Accountant and Tax Practitioner
Chartered Certified Accountant - FCCA
3,059 satisfied customers
I have been sent a letter from the tax - it seems my
I have been sent a letter from the tax - it seems my accountant has declared more subbies working for me than actually did, despite the fact that I sent off my subbies tax deductions every month after… read more
Sam
Sam
Accountant
13,978 satisfied customers
We have a holiday home in France which we have had for 23
We have a holiday home in France which we have had for 23 years and wish to sell. I need to know which costs for renovating it are allowable against capital gains tax.… read more
taxadvisor.uk
taxadvisor.uk
Accountant and Tax Practitioner
Chartered Certified Accountant - FCCA
3,059 satisfied customers
I am a UK resident for tax purposes since 2012. I plan to
I am a UK resident for tax purposes since 2012. I plan to transfer to my 25 year old son who is a UK tax resident, this year a plot of land in my country of birth which i bought 23 years for the equiv… read more
taxadvisor.uk
taxadvisor.uk
Accountant and Tax Practitioner
Chartered Certified Accountant - FCCA
3,059 satisfied customers
We are a us based company. We have a question about vat.
Hello. We are a us based company. We have a question about vat.Essentially we connect a client in the UK with a client who could be anywhere in the world.We handle the payments.We take money from the … read more
bigduckontax
bigduckontax
Accountant
FCCA FCMA CGMA ACIS
859 satisfied customers
This is a question for a Verified UK tax professional only I
This is a question for a Verified UK tax professional onlyI am a British national and an Australian resident for tax purposes since March 2016 (I have not been outside Australia since then and have a … read more
bigduckontax
bigduckontax
Accountant
FCCA FCMA CGMA ACIS
859 satisfied customers
I am serving in Army. I was advised by HM Customes to use a
I am serving in Army. I was advised by HM Customes to use a UK414 to register my tax free vehicle when I bought it over from Germany, the same person is now telling me 1 1/2 years later that I have to… read more
TEAP007
TEAP007
Tax Preparer
Fully Trained Inspector of Taxes B1
759 satisfied customers
I get tax credits but have inherited money following the
i get tax credits but have inherited money following the death of my mum. Do i have to advise tax credits of this. Have given some money to other family and paid off debts. Not a lot left but not sure… read more
Sam
Sam
Accountant
13,978 satisfied customers
I am receiveing money from abroad, do i have to pay for Non
i am receiveing money from abroad, do i have to pay for Non Residential Tax Clearance Certificate? … read more
Clare
Clare
Solicitor
Bachelor's Degree
147 satisfied customers
I used to live in Ireland 4 years ago and set up my TIN
Hello, I used to live in Ireland 4 years ago and set up my TIN because I do world-wise freelance, however I've been consistently moving countries because I like to travel and wasn't aware on how to do… read more
bigduckontax
bigduckontax
Accountant
FCCA FCMA CGMA ACIS
859 satisfied customers
I'm trying to submit abbreviated company accounts for my
I'm trying to submit abbreviated company accounts for my Cricket Club to companies house and not an accountant! Keeps coming up with the message "Current period: Members' funds must be equal to the to… read more
taxadvisor.uk
taxadvisor.uk
Accountant and Tax Practitioner
Chartered Certified Accountant - FCCA
3,059 satisfied customers
I bought a property in 1997 for £120K i moved out in 2004
i bought a property in 1997 for £120K i moved out in 2004 and started renting it out. so it wasnt my main residential address from 2004 onwards. I am looking to sell property prices seem to be about £… read more
Julie Kingham
Julie Kingham
Director
Chartered Tax Adviser
733 satisfied customers
My 2016-17 tax statement from Funding Circle is here (
My 2016-17 tax statement from Funding Circle is here (https://i.imgur.com/WvhqXTI.jpg). Funding Circle's guidance on tax is here (https://support.fundingcircle.com/hc/en-us/articles/214636966). The in… read more
bigduckontax
bigduckontax
Accountant
FCCA FCMA CGMA ACIS
859 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x