Due to the wording within Capital Gains Tax (“CGT”) legislation, some taxpayers may consider triggering a deemed disposal when demolishing their main residence.
Demolition in this context means removing all but the foundations of a property before erecting a new dwelling.
Triggering a disposal will result in an allowable capital loss (as the market value of the site will be considerably less once the property is removed) and it may reduce the risk of challenge by HMRC when claiming Principal Primary Residence relief (“PPR”). HMRC could seek to challenge claims if a taxpayer was vacant from a property prior to its demolition or if construction works are significantly delayed.
This little-known provision may offer savings provided certain conditions are met. Given the complexity of the issue each case should be reviewed on its own merits by a qualified adviser.
Capital Gains Tax can be a complex area. Everyone’s situation is different and getting advice that is tailored to your unique situation can ensure that your affairs are as efficient as possible.