Captial Gains on new homes, is this legal ???

[Alimal456]

Hi,

Is the below situation legal ?

A build buyers a plot of land say for 100k and builds 4 houses. As soon as he starts to build the first home he notifies HMRC that this home will be his primary residence and so will move his/her private residence tax relief to the new home
.
As he builds more homes each these homes are then nominated as their primary place of residence by family members (Family members will own these homes)

Once built and lived in, would each family be able to sell their second home if they so wished ?? Without being liable for CG ??

As the homes would be new build the builder would be able to claim the VAT back on the cost of building the homes. Is the builder able to make one claim for all of the build cost (receipts in his name) or would he be required to get the names on the invoices made out to the owning family and make 4 individual claims ?

Thank you in advance for any advice about the matter !!!

 

[Bob]

No it won't work

 

[Alimal456]

Hi Bob

Thought it was too simple myself. Any pointers to why it wouldn't work ?? How could you reduce your CGT when building a new home ?

 

[UK Contractor Accountant]

The word 'builder' is the give away here. The development is part of his trade made in the pursuit of profit which means Principal Private Residence Relief will be denied by HMRC.

 

[Bob]

I'll leave it to someone with more up to date knowledge as the law in this area is changing. Having said that, the exemption has never applied if the primary purpose was acquiring the property with a view to realising a gain on its disposal. This can prove a barrier for a builder. The property must actually be the owner's residence and not just nominated as such. It must not be put up for sale before it has become a residence. Many articles online. This is just one of them

 

[teddys]

To the OP: there are contradictions within your query: PPR is a personal tax issue whereas VAT applies when there is a business or trade. Both can't apply to the property at the same time. Coming to the PPR relief, in the circumstances that you have described NO, not available (without unnecessarily going in to all the technical whys and wherefores)

 

[UK Contractor Accountant]

As the homes would be new build the builder would be able to claim the VAT back on the cost of building the homes. Is the builder able to make one claim for all of the build cost (receipts in his name) or would he be required to get the names on the invoices made out to the owning family and make 4 individual claims ?/quote]

As a builder the development would be zero rated for VAT as a new build - all invoices should be made out to the builder.

You are confusing the situation with the VAT and DIY Self Build Rules where you make a claim for the vat paid on materials used in the construction of the house

 

[Alimal456]

Many thanks everyone for the information !!!

* Yes it would be a DIY self build all work done by the builder, hence making one claim at the end of the build for materials etc

* Each family member is sold the home for a small amount

* As each family member would be living in the house for at least 6 months would this then entitle them to the PPR ?

Would this be deemed as trying to avoid CGT by HMRC ?

How best to be tax efficient on this issue without being charged 40% of the profits ?

 

[Alimal456]

If we expect to make a profit of over 44k would it be more tax efficient to form a company. Pay ourselves £7,400.00 (Below the NI limit) then pay corp tax of 21% on the profits, minus any payments to directors.

 

[The Byre]

How best to be tax efficient on this issue without being charged 40% of the profits ?

By not being so blatent! You can get away with all sorts of things, but if you make it so totally obvious, then of course they will want to rip you a new one!