Can you build a house in your garden? What are the tax implications of building a house in your garden? Can you build an annex in your garden? If you’re lucky enough to own a large garden, you could section off a sizeable chunk to become your perfect build plot. Not only will the land be free, you could carry on living in your home for no extra expense.

When it comes to building a house or annexe in your garden the key is that it is an ‘appropriate’ development. An application for a single dwelling will be more favorable than one for multiple houses. The Local Planning Authority will want to see a robust case to justify the scale, size and position of the new property. They will also want to know how it will be accessed, and a design without detrimental impact to the existing house or surrounding area.

There are always planning hoops to jump through. It may be wise to appoint a planning consultant to handle your application. For starters though, here are a few points to help you see how feasible building in your garden is.

Building a house or annex in your garden?

If you’re planning to build a house to accommodate family members then you may have grounds to build a self-contained annex. Building an annex in your garden is a different permission to a new dwelling and is likely to come with conditions that restrict the size of the building and state it must become part of the deeds of the existing house. Essentially, it prevents the property from being sold on separately at a later date. Usually it is easier to get planning for building an annex in your garden than it is for a house.

To live – or not?

There will be tax implications of building a house in your garden to sell on. You’ll have to pay income tax on your profit as ‘a developer’ if you sell. Also on the gain in the uplift in value of the garden plot now it has planning permission. Capital Gains Tax (CGT) on the profit also kicks in when you sell, whether this is straightaway or after a period of renting. If you move straight into your new home and sell your old house then you’ll be exempt from CGT.

Ransom strip

This is a small piece of land belonging to someone else. If you need to cross their land to access your new property or connect to the services then it could be a problem. Shared driveways might also be an issue if the agreement is to access just one dwelling or a specific house. A ransom strip prevents the development of the land and/or is a means for the owner to receive payment for access. Do your checks with the Land Registry. If there is a ransom strip in place you’ll have to pay the fee – or negotiate – in order to remove it.

Covenants

A covenant attached to your home and/or the garden could be another sticking point when it comes to building in your garden. This is a restriction put in place by a previous owner, which the current owner must abide by. Full details are held by the Land Registry. The one to watch out for is a covenant preventing any form of garden development.

Covenants can be difficult to remove but it may be possible to pay a fee to the beneficiaries. The price is usually set according to the value of the garden as a full development plot. If there appears to be no means to trace the beneficiaries, a solicitor can arrange a premium indemnity policy. Another route is to appeal to the Lands Tribunal on the grounds the covenant is no longer relevant. Although this isn’t easy to prove.

Conversely, you can add a covenant to the new plot if you are planning on selling it on.

House value

It’s only natural that the value of your existing house will fall slightly when you carve off a section of the land. Just make sure you retain a decent-sized garden when you set-out the building plot. Remember a garden that becomes a building plot with planning permission will jump up in value, thus you’re bound to recoup your losses – and possibly more.