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Q&As
Can I deduct the loss in value of my land when calculating capital gains tax?
I parcelled off some land and then sold the original house. The house value dropped due to the land being parcelled off. Now the new house is built, can I deduct the loss as part of the build cost when calculating capital gains?
Thanks
One Answer
Hi Shaun,
I would recommend reading the part-disposal rules to understand how to apportion the cost of the whole property. You can find these here.
I would then suggest getting a valuation of the retained land at the point of sale of the first house.
Let’s assume you paid £370,000 in total and sold the first house for £290,000 with the retained land valuation at the point of disposal of the first house being £60,000.
The allowable cost on sale of the first house is 370,000 x 290,000/(290,000+60,000) = £306,571. The base cost for the land before it is developed is 370,000 x 60,000/(290,000+60,000) = £63,429.
There is therefore a loss on the sale of the first house of £16,571. If you lived in the house and met Private Residence Relief rules, then when you sold it, there would have been no gain or loss, regardless of how much you sold it for.
If you didn’t meet PRR rules, then the loss could then be offset against capital gains in the same tax year or carried forward to set against a future capital gain on the second house. You would have had to complete the relevant capital gains & self-assessment forms.
If you then built the new house for £150,000, the base cost would be £150,000 + £63,429 = £213,429. So, if you sold it for £250,000 you would have a capital gain of £36,571. If you lived in the house before selling it and met PRR rules, there would be no chargeable gain.
However, I am not a specialist tax adviser, and therefore I would highly recommend seeking professional advice.
If you choose not to get professional advice, then it’s important to do a lot of research to ensure you understand the complexity of the rules surrounding tax on a property, as there may be a number of factors which haven’t mentioned in your query that would significantly change the advice you receive (such as business use of your home, or buying a property with the intention of making a gain).
You also need to be sure that you are reading the tax law in place at the time you undertook the transaction, as the law changes regularly.
Katherine Taylor (Build It’s finance director)