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When Do I Pay Capital Gains Tax (CGT)?


If I get planning consent and build a house in my garden (we occupy the main house), do I pay CGT when I sell it? If so, can I live in it for a short time to offset the tax? 

Arthur Weller Replies:

Yes, you will be liable to tax if you sell a new house that you build in the garden of your existing home, if you do not occupy it as your principal private residence (PPR). If you sell it soon after completing the building, most likely HMRC will classify you as a property developer and charge you to income tax (and Class 2 & 4 National Insurance contributions) on the profits. 

If you rent out the new house for some time, HMRC will most probably accept that the profit you make on the eventual sale should be assessable to CGT, and not Income Tax (and NIC). If, however, you move into the new house for an extended period of time and make it your legitimate qualifying PPR then the profit on sale will escape tax due to PPR relief.

Property Tax Insider This sample question and answer is taken from Property Tax Insider, a monthly UK tax saving magazine for landlords and property investors.

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