TT32: Tax-Free Development Gains Revisited
In Issue 19 of Topical Tips we reviewed how, in certain circumstances, tax-free gains could be made from selling off up to half a hectare (about an acre) of garden attached to a main residence. We will now consider what action should be taken if the garden is bigger than this.
The critical point is that the land must be in use at the actual time of the disposal as the “garden or grounds” of the residence. The Inland Revenue regard the word “grounds” as meaning land surrounding the residence that is in the same ownership as the residence and which is not used for other (e.g. business) purposes. Also, it is vital not to fence off the land to be sold, otherwise it will automatically be treated as a development site.
The next aspect to consider is the condition that the land in question is “required for the reasonable enjoyment” of the residence, having regard to its size and character. The Inland Revenue take a somewhat narrow view of this. They tend to argue that land is only “required” for the purposes of the legislation if it would be so required by each and every occupant of the property and that without the land, there would be such a substantial depravation of amenities that the property would be severely blighted. This is not a view with which most legal experts agree. However, logic dictates that it will be difficult to argue that land is “required” for the reasonable enjoyment of a property if the land is being sold separately from the property.
Making the case for a tax-free gain
So what can be done? Firstly, the case will be made much stronger if the land in question has been used as part of the garden or grounds for a decent period of time (preferably by successive owners). Photographic evidence showing the “garden” nature of the land should be compiled and kept safely for use in the event of an Inland Revenue enquiry. Conversely, the case will be significantly weakened if the land in question was bought separately from the property having historically been farmland or woodland. Secondly, the case will be strengthened if it can be shown that the grounds are similar in size to those of other comparable properties in the locality. The District Valuer will assess this aspect and, if he agrees, that will be the end of the matter.
As a last resort the best course of action might be to sell the whole lot (i.e. the existing house and grounds) to the developer as the Inland Revenue will have great difficulty in attacking any sale that includes the main residence as well as its garden and grounds.
Barnes Roffe Topical Tips
- Ensure that the land in question is part of the garden of the house and is used as such at the time of sale.
- Retain photographic evidence showing the land being enjoyed as a garden over as long a period of time as possible
- In cases of doubt, consider selling the house and grounds as one lot.