‘Developing’ an issue

With councils coming under increasing pressure to meet planning quotas, and with building space at a premium, could you have a ‘plot’ of gold? Our tax experts at Randall & Payne, accountants in Cheltenham, explain all.

The selling up/cashing in issue

Selling a plot of land linked to your private residence would be exempt from Capital Gains Tax (CGT) by virtue of the Private Residence Relief (PRR). However, exemption does not apply if the land does not form part of your garden, ie it is fenced off or used for stables or a paddock. The relief also only applies to garden property up to 1.2 acres, but it is possible to claim if you are able to prove that the whole garden was required for ‘reasonable’ enjoyment of the residence.

The Inheritance Tax (IHT) issue

If you choose not to sell, then your IHT estate could drastically increase by the ‘development’ value the land holds. This could be as a result of a previous approach by a developer or where neighbours have sold their land for development.

From 2016/17 onwards, an additional annual incremental allowance called the main residence nil rate band (RNBR) was introduced, which raised the IHT threshold, but this may be restricted by the increase in value.

Also, depending on how the land has been used during its ownership, Agricultural Property Relief (APR) or Business Property Relief (BPR) may be available to reduce some or all of the value of the land.

Passing the land to the next generation

A straightforward gift will not have immediate IHT implications, but tax liabilities may apply for CGT purposes as this is a chargeable disposal.

While trusts are not as tax efficient as they once were, they are still a useful method of both reducing the Settlors IHT estate and passing assets to future generations. Settling into a trust will still be a disposal for CGT, but there are reliefs available to defer the gain.

The crucial point is to get your plans in place early. We can help you decide the best and most tax efficient option depending on your circumstances.

Contact Emma Robinson in the tax team, for more information by emailing or call 01242 776000.

Click here to find out more about how we can help with Personal tax compliance and Inheritance tax.