If you’re only just embarking on building your own home, the moment when you put it up for sale might seem a very long way off. But the question of whether you’ll pay capital gains tax (CGT) when you sell or dispose of the home is, after all, an important one.
Just as when you’re buying a house, and whether you plan to live in your self-build for many years to come or just a short while before moving on, it is a good idea to think about whether you might be liable for tax on any gain when the property is sold.
To help you consider the future, we asked an expert to provide the details on the capital gains tax that might be payable when you sell a self-build home and, below, are the details.
Is capital gains tax payable when you come to sell a self-build home?
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The issue of capital gains tax doesn’t arise until you decide to move on from a self-build house.
“CGT is payable on gains made on a capital disposal, therefore it should only be relevant if the house is sold or gifted,” says Ben Taylor, senior associate and tax specialist at Roythornes Solicitors.
Tax relief typically applies if you have one home and have lived in it as your main home for all the time you’ve owned it. However, this isn’t always the case.
“Principal private residence relief (PPRR) generally applies to relieve any gain on the sale of your main residence (your home), but it is not an absolute relief,” explains Ben. “There are conditions and certain things to watch for, such as buying with a view to making a gain, the size of the property, multiple homes, period of absences, and renting.”
And note also the caveat if you didn’t buy land to build on. “If you were gifted the land and holdover relief was claimed, that can interfere with the availability of PPRR down the line,” says Ben.
Ben Taylor
Ben Taylor is a key member of Roythornes’ real estate tax and private and corporate tax teams. Specialising in lifetime estate and business succession planning, he provides expert guidance on capital taxes (IHT and CGT) and transactional tax matters, including SDLT and VAT.
What are the CGT implications if you self-build in the garden of your home?
“PPRR may help here to improve the CGT position,” says Ben Taylor. “But, as above, it is not an absolute relief,” he cautions. “Advice should be taken, and remember, CGT on residential property now needs to be reported and the tax paid within 60 days of disposal.”
What happens if you’re a serial self-builder?
While self-building once satisfies many people’s needs to create their dream home, others do so serially, building a home, living there for a period, selling, then repeating the process. If so, there may be consequences in terms of tax owed despite living in each self-build property for a while.
“This might fall into the ‘making a gain’ exception mentioned above,” says Ben Taylor. “Or worse still, the activity may meet the ‘badges of trade’ and be taxed as income rather than capital,” he adds.
What else is important to know about CGT on the sale of a self-build?
“I wouldn’t necessarily let the tax-tail wag the dog, but take advice if you are uncertain about a future sale,” says Ben Taylor.
“While it is not gospel, HMRC’s CGT manual can help as a starting point,” he adds.
Being aware of the circumstances in which capital gains tax might be payable on the sale or disposal of the home you built can spare you a costly surprise, and if you’re unsure it’s always worth speaking to a professional adviser. If you do need to report and pay tax, you can work out your gain via HMRC services.
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