Principle Private Residence and the Potential Pitfalls of your Garden

Apr 25, 2023

Many people with large houses have considered selling off part of their garden to a developer, to realise some value from their property without completely selling up.  

Perhaps the kids have left home and there is no need for such a large plot of land anymore, or age means they no longer want the responsibility of managing a big garden.  

But what many people don’t realise is this can lead to a Capital Gains Tax (CGT) burden, despite the fact that the land is part of their main or only residence.  

This is due to a concept called Principle Private Residence (PPR) which sets out the circumstances under which Capital Gains Tax is or isn’t levied when selling off all or part of your estate.  

Private residence relief 

Under the regulations, if you are a homeowner you  are exempt from paying CGT on the disposal of their property if the following conditions apply:  

  • You have one home and you’ve lived in it as your main home for all the time you’ve owned it 
  • You have not let part of it out, a lodger excepted 
  • You have not used a part of your home exclusively for business purposes (a temporary or occasional office does not count as exclusive business use) 
  • You did not buy it just to make a gain 
  • The grounds, including all buildings, are less than 5,000sqm (just over an acre) in total. 

It is the final point that can cause issues for homeowners looking to sell off part of their garden for development. It is also where the regulations become murky at best.  

If the house, grounds, and any outbuildings are less than 5,000sqm then CGT won’t apply if all or part of the plot is sold for development.  

This is because 5,000sqm is the figure HMRC regard as being required for the ‘reasonable enjoyment’ of the property by the owners.  

Therefore, land outside of the 5,000sqm sold for development should be liable for CGT and this rule is likely to apply in the vast majority of cases.  

But, when presiding over whether to levy CGT or not, HMRC do take into consideration the size and character of the dwelling and may conclude an area larger than 5,000sqm is required for the reasonable enjoyment of the property, meaning a larger area could qualify for CGT relief.  

The assessment for this is generally based on comparisons with other, similar sized properties within the local area.  

As HMRC rarely likes to do itself out of tax money, it should be assumed that in the vast majority of cases, they will rule that a dwelling does not qualify for reasonable enjoyment beyond the allotted 5,000sqm.  

However, the principle has been tested in court in a well-known First-tier Tax Tribunal (FTT) case where HMRC charged CGT on a couple who sold their 0.94-hectare plot for development.  

Property owners Leslie and Catherine Phillips appealed the decision and the judges found in their favour, ruling that the dwelling, which was large and in a rural area would appeal to somebody looking for a larger house and more space around it for privacy and other reasons, and therefore the whole area qualified for PPR.  

PPR can be a difficult area to navigate for owners of large properties surrounded by large plots. If you’re considering sell off part of your garden for development and require advice, get in touch on (01295) 270200 or email 

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