The demand for new homes is greater than ever and many homeowners with large gardens consider selling part of their garden to property developers or building a house themselves.
We are often asked about the tax implications of this…
When you sell your only or main home any profit on the sale is generally exempt from Capital Gains Tax as a result of Private Residence Relief (PRR). Your ‘home’ includes your garden and grounds so long as the land is used and enjoyed as part of your main residence whilst you live there.
It is possible to claim PRR if you sell just part of the property, for example, part of the garden. The relief automatically applies to properties of up to 1.2 acres (0.5 hectares) in total. It is also possible to claim relief if your plot is bigger than this, as long as the extra space is required for the reasonable enjoyment of the house. However, if you have a larger plot, HM Revenue & Customs may argue that the sale of part demonstrates the land sold was not required for the reasonable enjoyment of the property, and so seek to deny the relief.
To ensure any relief is available, the land should clearly be part of the gardens or grounds and used as such until the date of sale, so it should not be separated or fenced off from the area you are going to retain. We would also recommend you keep evidence of the area being sold was used as an integral part of your garden (for example taking photographs of the garden in use).
Obtaining planning permission to develop part of your garden will not automatically prevent PRR being available and this may make the land more valuable. But at the same time, please be aware that if you purchased the property with a view to realising a profit on the sale of some or all of it, PRR will not be available and the profit you realise could be subject to Income Tax rather than Capital Gains Tax.
Likewise, if you decided to build the new house on your land and sell the completed property this could be viewed as trading activity, meaning at least part of the profit realised is subject to Income Tax and not Capital Gains Tax.
You should also be aware of the transactions in land anti-avoidance rules which could be triggered in certain circumstances which would result in any profit being subject to Income Tax.
On a positive note, if you are able to claim PRR on a sale of part of your garden, this could result in the gain realised being tax-free. Given the potential tax savings, if you are thinking of selling part of your garden we would recommend getting professional advice as early as possible to ensure any necessary tax planning steps can be taken.
Where PRR is not available in full, an in-year Captial Gains Tax Return will need to be completed and submitted within 60 days of the transaction completing. Any tax will also be due at this time based on your expected annual income.
For advice on the tax implications of selling some or all of your property and associated gardens, please do contact me here, or call +44 (0)330 124 1399.
Do I need planning permission to sell part of my garden?Not always. You can sell land without planning permission, but having permission in place will increase the value and attractiveness of the plot. Buyers and developers may not proceed without it, so getting permission in advance will make the sale smoother and potentially more profitable.
Will selling part of my garden affect the value of my remaining property?Yes, it can. Reducing the size of your garden will make your home less attractive to future buyers, especially if outdoor space is a key selling point in your area. If your garden is unusually large the impact may be minimal. Get advice from an estate agent before you decide.
Can I sell part of my garden to my neighbour instead of a developer?Yes, it’s possible. Many homeowners sell small sections of their garden to neighbours who want to extend their plot or build an outbuilding. The same tax and legal considerations apply, and the land should be formally transferred with updated title deeds to avoid disputes later.
How do I calculate the sale price of my garden land?The value depends on the size of the plot, location, access rights and whether planning permission has been granted. A garden plot with planning permission for residential development is worth much more than land without permission. Chartered surveyors and estate agents specialising in land sales can give you a realistic valuation.
Will selling part of my garden trigger Stamp Duty for the buyer?Yes, the buyer will generally need to pay Stamp Duty Land Tax (SDLT) if the purchase price exceeds the threshold set by HMRC. This applies whether the buyer is a neighbour, an individual or a developer. Get legal advice for both parties to understand their obligations.
How long does it take to complete the sale of part of a garden?Timescales vary depending on whether planning permission is needed and how complex the legal work is. A straightforward sale to a neighbour may take a few months, while a developer purchase requiring planning consent and land registry changes may take much longer. Factor in these steps early to manage expectations.
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