Selling Your House and Garden Separately

Sometimes, selling your garden or land separately from your house can make sense. However, timing is crucial because selling in the wrong order could lead to an unwanted capital gains tax (CGT) bill. Proper planning is essential, and understanding how private residence relief works can help you avoid surprises.

What Is Private Residence Relief?

Private residence relief is a tax exemption that prevents CGT when selling your main home if it has been your only or primary residence throughout ownership. If the property wasn’t your only home during the entire period, the relief applies to the time it was your main residence, the final nine months of ownership and any periods of qualifying absence.

Does Private Residence Relief Cover Gardens?

Yes, the relief extends to land enjoyed as a garden or grounds with your home, up to 0.5 hectares. A larger area can qualify if it’s necessary for the reasonable enjoyment of the house, considering its size and character. For instance, a larger garden might be necessary for a large family or if the property is in a rural area. However, if the garden exceeds the permitted area or is separate from the property (e.g., across the street), it might not qualify. The facts of each case must be assessed to determine eligibility.

Selling Land First

If the land qualifies as part of the garden or grounds and is sold before the house, private residence relief can apply. This means any gain from the land sale may be exempt from CGT, provided the associated house has been your main residence throughout ownership. In such cases, part disposal rules will apply. These rules calculate the gain by apportioning the original cost of the property between the part sold and the part retained based on their respective market values at the time of the sale.

Selling Land After the House

When selling land after the house, timing becomes critical. Private residence relief only applies if the property is still your main residence. If the house is sold first and the contract for the land is dated after the house sale is finalized, the relief will be lost. However, if the land sale contract is signed before the house sale is completed, relief can still apply.

Frequently asked questions (FAQs) Selling House and Garden Separately

1. What happens if I sell my garden before my house?

If the garden qualifies as part of the grounds of your main residence, selling it before the house allows you to claim private residence relief. This means you won’t pay capital gains tax on the sale. However, the land must be sold while the associated property is still your main home. Proper planning is necessary to ensure eligibility for this relief.

2. Can I claim private residence relief on land that is separate from my house?

Generally, the garden must be attached to or directly surrounding the house to qualify. If the land is separate, like across the street, it might not be eligible unless specific circumstances, such as the property and garden being conveyed together in a single transaction, apply. Reviewing the details of the property and its history is key to determining if the relief applies.

3. What if I sell the house first and the garden later?

If the house is sold first and the contract for the garden is signed after the house sale is finalized, private residence relief will not apply. This could result in a capital gains tax liability on the garden sale. To retain the relief, ensure the contract for the land sale is dated before the house sale completes.

4. How can I avoid capital gains tax when selling land?

To avoid CGT, ensure the land is part of the grounds of your main residence and that the sales occur in the correct order. Selling the garden first or timing the contracts properly can preserve private residence relief. Seeking expert advice can help you structure the transactions correctly.

If you need help with CGT or tax disclosures, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.