Can I sell part of my garden for development free of tax?
This concerns the “principal private residence” (PPR) relief from capital gains tax. The relief is given against gains arising on a disposal of a dwelling-house or part of a dwelling house which is or has at any time been an individual’s only or main residence. It is also given against gains arising on a disposal of land which the taxpayer has for occupation and enjoyment with that residence as its garden or grounds up to the “permitted area”. This means PPR relief may be available on a sale of part of the garden without a sale of the house but in other cases the occupation condition might pose a problem. The house merely needs to have been occupied by the individual at some point during ownership but the garden has to be occupied with the house at the time of the disposal. Because of this, if part of the garden is retained following a disposal of the house then a subsequent gain arising on a sale of the part retained will not qualify for relief.
The permitted area referred to above is 0.5 of a hectare (including the house) but can be a larger area if it is required for the reasonable enjoyment of the dwelling-house as a residence having regard to the size and character of the dwelling-house. A gain arising on a disposal of part of the garden or grounds out of the permitted area can qualify for relief but HM Revenue & Customs are likely to challenge a claim for relief on a part disposal out of garden or grounds which exceed the permitted area. HMRC’s published view is that where there is such a disposal it may be prima facie evidence that the part disposed of was not required for the reasonable enjoyment of the dwelling-house as a residence so the conditions for relief are not all met. HMRC do however give two examples of when such an inference might not necessarily be correct; the first is where the disposal is to a family member and the second is where the disposal is made for reasons of financial necessity.
Garden or grounds in excess of the permitted area are not the only source of potential difficulty. Other problem areas include plots of garden or grounds which are somehow separate from the main plot and buildings which are separate from the main house. As with all valuable tax reliefs, traps for the unwary exist and great care must be taken to prevent relief being denied.