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Legal News | 15.02.24

Taxing Gardens

Usually when you sell the property you live in you do not have to worry about paying capital gains tax (CGT). This type of sale usually attracts principal private residence (PPR) relief from CGT.

When you dispose of a property that is not your primary residence, however, CGT is payable on any gain you realise which exceeds your annual exempt amount. This is currently £6,000, reducing to £3,000 from 6 April 2024.

For residential properties, gains are taxed at either 18% or 28% depending on whether you are a basic or higher/additional rate taxpayer. Non-residential property gains are taxed at either 10% or 20%.

What if you have a very large garden and are considering selling part to a neighbour or for development? Where your garden is attached to your primary residence, you might assume that such a sale would not be subject to CGT. Ordinarily, this assumption would be correct, as HMRC generally treats land surrounding a house as part of its grounds, treating it as residential property for CGT. (This would not be the case, however, if it can be shown that the land is used for another purpose, such as agriculture.)

PPR, however, only applies automatically to the ‘permitted area’ around a dwelling. The permitted area is either 0.5 hectares or such gardens or grounds as are ‘required’ for the enjoyment of a dwelling. This can be a complex test but usually the bigger the house the larger the gardens and grounds can be within the ‘permitted area’, if they are in keeping with the character and size of the building. If you are selling part of the grounds, however, it could suggest to HMRC that it is not ‘required’ for the enjoyment of the house so it is worth taking advice well before you decide to sell.

If CGT is chargeable on any sale of land or property you will need to report the gain and pay any tax due to HMRC in the correct timeframe. On residential property this must be done within 60 days of completion of the sale.

If you would like advice regarding CGT or advice on when a gain should be reported, please contact the private client team on wealth@wansbroughs.com.


Posted By Our Wills, Tax, Trusts & Probate Team