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  • Katherine Bullock

No Place Like Home – Tax and the Main Residence – Don’t get lost in the weeds!

Much ink has been spilled on the topic of gardens and grounds in the context of Principal Private Residence Relief (PPR). However it is an area where practical ideas about developing and extending onto the garden or, more common recently, acquiring land to increase the size of a garden can generate interesting but less common issues.

"...what happens if the garden is shared amongst multiple residences..."

It is worth remembering first the main issues in contention when looking at whether a claim for PPR on your garden will successfully mitigate CGT when it is sold. Firstly, the land needs to be the ‘garden or grounds’ of the property, occupied for the enjoyment of that property. There is no definition of ‘garden or grounds’ in the legislation, but case law has established that the ordinary, natural meaning of the words was intended, and so it covers a wide variety of real-world scenarios and must be considered on a case-by-case basis. So the land should be kept and used for garden-like activities. Secondly, it must be within the ‘permitted area’ of the property, a space of no more than 0.5 hectares (i.e., 5000 square metres in more common units of measurement) unless more would be reasonably required for the enjoyment of the property. For example, if the property in question were a large estate house prized entirely for its extravagant grounds and views then a larger allotment of land might be permitted to benefit from PPR. By contrast, if you attempted to claim acres upon acres of land as necessary to the enjoyment of a windowless single-bedroom cottage, you may have somewhat of an uphill struggle ahead of you in front of the first tier tribunal!

With these requirements in mind, let’s investigate a few of the more interesting dilemmas that might crop up when dealing with PPR on gardens and grounds. Specifically, what happens if the garden is shared amongst multiple residences or dwellings, as might be the case for an apartment complex or a series of terraced or semi-detached houses? That is where the land is held in ‘undivided shares’ – the land is not divided up but held equally by all of the landowners without being split into individually owned parts. One issue for the taxpayer is that while they might have the right to use the garden, the value of a space over which they do not have full control, and which can be freely used by any of the other stakeholders may be significantly reduced compared to one which they hold exclusively. This, in turn, may causes a significant reduction in the amount of PPR that can be claimed for the value of the garden when the residence is sold. To avoid this, the land could be divided into 0.5-hectare parcels with easements granted to the other owners of the shared garden to provide free access, preserving the spirit of the arrangement while maximising PPR on the sale of the property. Proximity of the various plots to the house may also need to be considered. While this approach does rely on a certain level of control over the whole property which might not always be available, it is well worth investigating as the legal structure by which the land is held and the rights and restrictions attaching to it may significantly effect the amount of relief available.

The second slightly unusual question is what happens if you acquire land to increase the size of your garden after you already own the house? Well, luckily for us the first part of that question is refreshingly straightforward: the legislation in question is TGCA 1992, s.222(1)(b) which refers to land held as gardens or grounds in the present tense and does not require that the land has been held for the same length of time as the main residence itself. Provided that at the moment of disposal the land is held as a garden or grounds of the property being disposed, and fits the other requirements as briefly discussed above, PPR may be claimed even if the grounds were owned for mere moments beforehand! However, when adding land to the garden of the property, extra care must be taken with the issue of the ‘permitted area’. Since the legislation requires land over 0.5 hectares to be required for the enjoyment of the property in order to qualify for PPR, any land that was added to the house after the fact, especially by a subsequent owner of the property rather than its constructor, would have a difficult time arguing that it was necessary to enjoy the property when previous owners obviously did without. Certainly, something to consider before assuming that PPR would be available on a sizable new garden for your property. The size of other gardens in your locality may be an important factor to consider here.

In conclusion, it’s easy to see that the pitfalls of PPR may become more akin to a ha-ha when one ventures beyond the walls of the dwelling. However, provided that one is careful to bear in mind the link between the character of the residence; what grounds might reasonably be considered appropriate and to think broadly about the different ways to hold communal land in particular, some real tax savings can be achieved without having to sacrifice what can be one of the best features of a property. You simply need to be careful that you don’t get lost in the weeds!


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