Q&A - Will I have to pay CGT if I sell of some of my land?

15/10/2010

Q:  I am thinking of taking early retirement and am looking to sell off part of my land in order to reduce my mortgage and fund other ventures including setting up a business. Would I be liable for Capital Gains Tax on the sale of the land?

A:  Firstly, if you have a mortgage you would need to get the lender's consent before you can sell any land that was part of the overall property, for example the garden. If the lender consents they will normally require a particular sum out of the proceeds to reflect the loss in value of the overall security for the mortgage. 

In respect of Capital Gains Tax (CGT) your only or main residence is excluded from CGT, along with grounds of up to half a hectare (one hectare = 2.47 acres). If the land extends to over half a hectare, or it is outside the garden or grounds of the house, CGT would be payable.  

If the land you want to sell exceeds half a hectare or was purchased with the house but is separate from it (and therefore liable to CGT), you would need to get a surveyor to assess what fraction of the original purchase price related to the piece of land you are proposing to sell. Unless the total gain is very clearly going to be below the CGT exemption level you should check that HMRC are happy with your calculations in order to avoid a potential problem later one. It is worth bearing in mind, of course, that you are entitled to an annual exemption of £10,100 before any CGT is due. If the property is jointly owned then you can each use your exemption in respect of any gain.