Q&A 81 – Capital Gains On A Sale Of A Garden

Question 81

sales microsoft outlook Gisele asks: “I read with great interest your article on Capital gains tax and I hope you can give me a clearer idea of my tax liability on a sale of land that is about to go through, and how to invest the proceeds”.

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Q&A 81 – Capital Gains On A Sale Of A Garden – Shownotes

Gisele asks:

Hi

I read with great interest your article on Capital gains tax and I hope you can give me a clearer idea of my tax liability on a sale of land that is about to go through.

The land is quite small, currently part of my garden and sits alongside my property. The agreement I have made with the builder is that he will pay £55,000 for the land and in addition carry out £30,000 of improvement to my house. I understand that I am liable for capital gains tax on the full amount of £85,000.

My annual income is somewhere between £12,000 – £14,500 per annum. With the initial £11,000 tax free, I believe I have to pay capital gains at a rate of 18% on the remaining £74,000. Is this correct?

Then, where should I put the £55,000 (cash sum)?

I can’t get my head around having the money from the builder and then just buying an ISA. How do I declare this and do I say all this on a tax form (I don’t do my own returns, I am PAYE and my employer is responsible for paying my tax).

This part baffles me, a little like say ‘here, Mr Taxman, I’ve got all this cash but look….you can’t have it!’

If I put the £55,000 in a 1 year ISA would I then have to pay tax on it?

Looking forward to your reply

Kind regards

 

I needed to ask a couple of questions before we can decide on the capital gains tax treatment for this land.

  1. Is the land in total less than 0.5 hectares?
  2. Are you intending to continue to live in the house?
  3. Has this property (and garden) been your primary residence whilst you’ve been living there?
  4. Can you confirm that the land meets the criteria of a garden: “a piece of ground, usually partly grassed and adjoining a private house, used for growing flowers, fruit or vegetables, and as a place of recreation.”

Gisele answered each with “Yes”.

 

Permitted Area

In that case, based on my understanding of Private Residence Relief, based on the “permitted area” and the fact you are selling part of your garden whilst you are still living in your property, you will be eligible for full relief, meaning that your transactions will be exempt from capital gains.

However, don’t take my word for it! I’ll let you have a good look through the HMRC manual on the matter.

Also, given the total consideration of £85,000 falls below the threshold of £125,000, the transaction will also incur 0% stamp duty.

Hope that helps with the first part of your question.

 

How Much To Invest At Once

For the second part, you will now have £55,000 in cash sitting in your account. Regarding your question on ISAs, the limit for what you can put into an ISA in any one year is £15,240. This resets at the end of the tax year (05th April), meaning that if the sale goes through soon, you will be able to put £30,480 into an ISA over the two tax years spanning 2015-16 and 2016-17.

The rest of the cash would have to remain outside of an ISA.

For more advice, I’d recommend reading the following:

Long Term Investing Guide

ISA vs Pensions

Arguments For Passive Investing

If you have any other questions as a result, let me know.

 

 

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