Many homeowners with large gardens consider selling part of their garden to property developers or building a house themselves, it can be a great way of extracting tax-free cash from your home.
Principle Private Residence Relief (PPR) usually exempts most owner occupiers from a charge to tax when they sell their main residence.
The relief is only available when the sale is of a dwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, his only or main residence or the sale is of land which he has for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area.
The above would allow an occupier to sell part of their garden whilst retaining their house and remaining land in their garden and not pay tax on the disposal. This, however, is subject to the conditions outlined in this article.
However, the sale of land which he has for his own occupation and enjoyment with that residence as its garden or ground up to the permitted area is written in the present tense which means for this exemption to apply it requires ownership and occupation at the date of sale. The sale of your garden after the sale of your home would not be subject to the PPR exemption and would therefore be taxable.
The garden or grounds will include any enclosed land surrounding or attached to your dwelling house and serving chiefly for ornament or recreation. However, not all land you hold with your dwelling house is treated as the garden or grounds of that residence. You’re not entitled to relief for land let or used for a business, for example, surrounding farmland. Similarly, land which at the date of disposal has been fenced or divided off from your garden for development or has been developed or is in the course of development (for example, excavations under way for foundations, roads, services, and so on) will not qualify.
HMRC expects the garden to be used for growing plants or fruits and vegetables on a purely domestic basis. Therefore, having a beehive and selling the honey at the local shop, or letting a neighbour’s animals graze on the land for a fee, for example, will give HMRC cause to deny or at least question a PPR claim as may the refusal of any kind of planning permission for the land.
If your garden and grounds exceed half a hectare (1.23 acres), you may not be entitled to relief for all of it. The area for which you’re entitled to relief is called the permitted area. It consists of the area that’s required for the reasonable enjoyment of your dwelling house as a home. The area may be larger if, having regard “to the size and character of the dwelling-house, that larger area is required for the reasonable enjoyment of it as a residence”. The question to be answered is whether the house requires the land rather than whether the owner requires the land.
In summary, although the sale of part of your garden can be very lucrative, it is very important that professional advice is sought early enough to ensure the transaction is dealt with in the most tax efficient manner.