We are currently looking at the possibility of demolishing an existing bungalow on our property and building two new detached bungalows. We currently live in the existing, to be demolished, bungalow (no. 35) and aim to move into the new, no. 35A, bungalow when its completed.

As I understand I should be able to zero rate the VAT on the 35A property build as it is a self-build. What would the VAT implications on the rebuild of no. 35 be? Could that be zero rated?

Secondly as I am to ‘move’ from 35 to 35A would the sale of 35 be free of CGT? I understand this would normally be the case, but as 35 would have been rebuilt could this cause issues?
Is there anything else to take into consideration?

  • Mark Brinkley

    If the existing bungalow is to be demolished and rebuilt, it will qualify as new work and therefore be zero-rated for VAT.

    As for CGT implications, it’s a little more complicated. If you were to simply move from 35 to 35a, you could sell 35 up to three years later without losing your Principle Private Residence Relief. But if you demolish and rebuild 35 after you have moved out, and then sell it, it could be argued that you had been doing this purely for profit and therefore the work you undertake would be regarded as development and therefore taxable. It’s not clear cut, but to be on the safe side, get it valued on a before and after basis and keep good records of the money you pay to undertake the work.

    Alternatively, move back into 35 after you have finished the work and sell 35A.

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