Tax Relief on Selling Your Garden

The Government’s pledge to build 1.5 million new homes over their 5 year term in office has seen an increase in property development/planning applications. This movement has seen a rise in homeowners applying for planning permission to develop their gardens. This has prompted the question from many people, “Do I need to pay tax on the sale of my garden, for development?”.

It’s well known that the sale of an individual’s main residence (home) is exempt from Capital Gains Tax (CGT) thanks to a relief called Principal Private Residence Relief (PPR Relief). However, there are certain conditions that need to be satisfied for the relief to cover the capital gain associated with the garden/land connected to the main residence. Legislation states that the grounds must not exceed 0.5 hectares (equivalent to the size of approximately 75% of a football pitch). This permitted area also includes the site and floor plan of the dwelling. However, certain exemptions to this condition can be argued where the size of the grounds is in keeping with the character of the property. Another condition is that the grounds must be available to be used by the resident for reasonable enjoyment. This could include ball games, gardening and other recreational uses.

In certain cases, it may therefore be possible for the sale of a garden, for development/planning purposes, forming part of the main residence and satisfying the conditions above, to qualify for PPR Relief. However, the importance of being able to evidence that the grounds were being used as a garden and the timing of the sale of the development plot are crucial in ensuring that a successful claim is made.

There have been many cases where this has been challenged in the first and upper tier tribunals. The conclusions of the cases often come down to subtle technicalities. Where this type of planning has not been successful, it has frequently been because of poor planning/structuring. In one such case, a homeowner was ordered to pay CGT because the development plot had been fenced off as a restricted area and therefore was unable to be used for recreational purposes as a “garden”.

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Clearly, this area of taxation can be contentious and is not without challenge. Therefore, it is important that the correct processes and timelines are followed. The Whitings Property Specialists are always on hand to help clients with these matters. Contact your local Whitings LLP office today for assistance.