Building 2 houses - Folio Division & Tax

dkeany

Hi, I am building two houses on a site left to me. I have planning and agreement with a builder. The plan is to sell the first house before completion to help pay for the second home which I will live in. The build has been held up because the bank required me to subdivide the folio so I could get a mortgage on one of the houses as opposed to the whole folio. The bank also stated I wouldn't be able to sell without this subdivision anyway. 6 months, multiple engineers later(2 went awol) and a not very on the ball solicitor (I like the firm but the land specialist isn't great) and the application is only just being submitted.

My questions: Firstly, the head solicitor who has been excellent in other issues in the past and is finally getting the subdivision application over the line, is adamant that it could take years for the subdivision to be processed by land registry and that I actually don't need it either for the bank or the sale? Is any of this correct? I've heard different things from multiple different sources and the bank were adamant when I last spoke to them.

Secondly, is there a way to avoid capital gains on the sale of the first house, due to the fact the profits will be sunk into the second build and I'll end up with a mortgage on the whole thing? In essence can the whole project be looked at as one in terms of CGT? Yes, I will be meeting my accountant soon but I still appreciate any input.

Finally, when buying a new home, from what I understand, the buyer pays 12.5% vat, but from what I can tell, this never ends up happening, so basically is the 12.5% just absorbed into the sellers costs in reality?

Thanks for any feedback and again, I'm aware I need to seek professional advice but I've heard so much conflicting information from professionals during this process, I'd like to get a diverse range of perspectives.

Bass Reeves

If you did not subdivide the bank would have a lean on the complete folio. This could be very messy of there was any issue with the build and you needed to sub divide afterwords.

Yes it takes Land Registry a while to process/complete any mapping, however I would not say years more like 6-12 months however this should not hold up you build you solicitor just provides guarantees to the bank it is in progress.

Why did you not sell the second site rather than building a house and selling the house and site. I cannot see much of an extra margin on the project.

There is no avoidence of CGT unless you can claim PPR on the new house. Nit sure how long you have to live in it but it must be inhabitable, ( kitchen, bathrooms ware, curtains , floor covering, furniture etc) and you must have lived in it. Other than that you pay CGT.

Vat is included in the builders cost but you can not claim it back unless you are vat registered. You will hVe to ask your accountant if you need to make a vat return on the sale. If you do it will be virtually imposssible to make a profit.

Mellor

If you sell the first house without sub-dividing. They will own the whole site. That's a not a good move for obvious reasons.

Secondly, is there a way to avoid capital gains on the sale of the first house, due to the fact the profits will be sunk into the second build and I'll end up with a mortgage on the whole thing? In essence can the whole project be looked at as one in terms of CGT?

If could only be looked at as one project, if it was bought and sold as one project. If you buy 200 shares, and sell 100 you pay CGT on those 100.

The only way to avoid CGT would be if all of your costs, in getting to the sale were breakeven with the disposal of half the site.

standardg60

I don't see how it would be possible to sell without dividing the site first.

We built on a site owned by an existing house, arranged with and paid solicitor for the sub-division and got mortgage no problem. Circa four years later when the other house owners were selling they discovered the division had never been done, rang the solicitors, tore them a new one, and it was suddenly completed within a fortnight.

You have to wonder sometimes.

dkeany

Yes it takes Land Registry a while to process/complete any mapping, however I would not say years more like 6-12 months however this should not hold up you build you solicitor just provides guarantees to the bank it is in progress

Yes, I think that's plan now; to get my solicitor to give a some guarantee to the bank in relation to the pending application. Thanks!

Why did you not sell the second site rather than building a house and selling the house and site. I cannot see much of an extra margin on the project.

I'm not certain on the margin either. So many variables that I'm learning about. The thought was that I get economies of scale for building the two houses and between any little profit from the first one would hopefully make building the second (which will become my primary residence) a bit cheaper as an overall project.

dkeany

If could only be looked at as one project, if it was bought and sold as one project. If you buy 200 shares, and sell 100 you pay CGT on those 100.

The only way to avoid CGT would be if all of your costs, in getting to the sale were breakeven with the disposal of half the site.

Hmm, ya that all makes sense, unfortunately. My builder is fairly sound, so I'm guessing frontloading some of the costs from the second house into the first house is the only way I might save a bit so. For example all the ground work (for both houses) will be done together but that cost could be incorporated as part of the first build and thus go against any profits from that sale. I'm not sure how much of this is feasible but I'll discuss it with him anyway.

dkeany

https://www.boards.ie/discussion/comment/121731030#Comment_121731030

Based on my experience in this process so far, I can totally imagine that situation. I've been shocked at how unprofessional some of the people I've dealt with are.

Mellor

https://www.boards.ie/discussion/comment/121732161#Comment_121732161

That's exactly the kinda of costs I'd thinking of. Essentially "overheads" for the first build, that the second build can utilise for free. Also any "surplus" material from the first, could be free issued to the second build in lieu of landfill. Obvious you could take the complete piss with accounting, i'm not encouraging that 😏

I'm not a CGT expert, there may be more advantagous was to structure it. No harm sitting down with somebody for an hour.