Whilst an Englishman’s Castle is often his Capital Gains Tax (CGT)-free home, it is not always the same for the garden. The garden size (including the footprint of the house) that is automatically exempt under the Principal Private Residence relief (PPR), is restricted to 0.5-hectare (approx. 1.25 acre in English) – and only then if the garden has not had any other (e.g.: agricultural or business) use.
Gardens above 0.5ha may need to demonstrate that their size is consummate with the style and nature of the residence and is comparable to similar properties in the locale. For example, a manor house with 3ha of formal gardens may go unqueried, but an end-of- terrace house with a similarly-sized garden could have an issue.
If HMRC can prove that the grounds to a house are “excessive”, beyond that needed for reasonable enjoyment or that you are not using all of the land as a garden (e.g.: some areas are fenced off), they will seek CGT on any gain related to the excess.
HMRC generally take the view that a house and grounds come as a package when acquired. If you later increase the garden size or if the garden is not immediately adjacent to the residence, a PPR claim on everything becomes harder – especially if any of the land had been purchased at a different time. That said, the existence of a road between the house and garden is not insurmountable for PPR if the two are genuinely associated.
Although land use at point of disposal is important, historical evidence (e.g., photographs) of usage can be vital. Unused and overgrown ground has been accepted as being part of a garden as have areas of woodland, other buildings, riverbanks and occasionally some paddocks – always with a view as to the size, usage and location of the land, and style and presence of the home.
With the new 60-day requirement to report and pay any CGT on a disposal of a residential property, assuming that a garden qualifies and later finding out that PPR is restricted will allow HMRC the potential to charge penalties for late declaration and payment of tax. It is better to check rather than assume.