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Submit plansHI, we own a large garden plot with our existing house. We are looking to downsize by building an additional smaller property on the garden plot (currently going through a pre-app process) but are concerned that we do this via the most tax efficient process. Our intention is to remain in our existing house during the build of the new property, moving in to the new property at completion, then selling our existing house. If we do this, will the construction of the new property be VAT free as a new build if it is intended to be our principle residence? Additionally, would we bit hit with capital gains tax on the sale of our existing property once we move into the new property if it is considered a second property?
Thanks
Stephen Spall
Good news – you are allowed to do this under the rules. All new builds are subject to the VAT reclaim rules, so you can reclaim the VAT on materials used and labour will be zero rated. See VAT notice 431 (NB) on the HMRC website for the details. If your intention is to build a new property on your own land, then my understanding is that you are allowed to do this without a capital gains liability as long as you declare the new home as your principal residence and dispose of the old one within a reasonable period – if I recall it is up to two years. It’s worth consulting a tax advisor and to make sure HMRC are aware of your intentions.