How to build and sell a house in your garden

After investigating this subject and reviewing the thoughts of various experts, the guidance below should help you navigate the issues and point you in the right direction with respect to who you will need to consult.

If you’re lucky enough to have a large enough garden, you may have given some thought to building on part of the plot.

As part of this, you may have contemplated using that area to build a new home – or maybe even new homes – if space allows.

Do this successfully and you have the potential to unlock significant value by eventually selling the property, or properties, on to someone else.

However, you will need to be prepared to navigate a lot of hurdles, as building in your own garden is rarely straightforward.

While there is one set of rules to get your head around if you are planning on selling your land to a developer, here we take a look at the ins and outs if you want to do things yourself.

Matters to consider are:

· What planning permission do you need to build homes in your garden?

· How much space do you need?

· What else do you need to consider?

· How do you finance the build?

· Selling to a developer vs self-build – which can be more profitable?

· Ways to minimise your tax bill

What planning permission do you need to build homes in your garden?

One key thing you need to know at the outset is that building a property on your land is not as easy as putting up an extension or garden office.

In short, this is because a self-contained dwelling is not classed as a permitted development.

A planning specialist said: To build a new house in your garden, you almost always require full planning permission. This is a major development that constitutes a material change of use of the land, and it is not covered by permitted development rights.

The planning application submission fee for a new single dwelling on a small site in my locality is £673.00 including the portal admin fee.

There are, of course, other costs involved, including professional fees for essential consultants, such as a planning consultant to manage the application, a designer (my fees are shown on my website) or an architect to design the property and potentially also tree and/or ecological consultants. Of course your project may be exempt from things such as Biodiversity Net Gain (BNG) something your designer should be able to give guidance on, and this does need to be investigated.

On top of planning costs, build costs can vary widely.

A realistic figure is between £1,800 and £3,000 per square metre, depending on finish.

How much space do you need?

While an extra property could end up being a valuable asset that you eventually sell to free up some cash, you need to be sure it will fully make up for the loss of outdoor space.

If you use up most of the existing garden on the build, will that negatively impact the value not just of the new dwelling but also your existing home?

According to some experts, if your garden is substantially bigger than the property’s footprint, reducing the garden size by an acre rarely affects the main property’s value. A lot will depend on just how ‘generous’ your plot is.

Equally, before you get ahead of yourself, remember it’s not simply a question of square metres: it’s about the quality and nature of the space.

The key planning considerations are privacy and amenity space. A new dwelling must not cause unacceptable overlooking of neighbouring properties – or the existing house.

It must also have sufficient private amenity space (a garden) for its future occupants.

While there’s no set minimum size, the plot must be large enough to accommodate the new building without it feeling cramped or out of character with the surrounding area.

Most local authorities want at least as much garden as a house, but in some places, more garden will be needed than that – it will often depend on the prevailing pattern of development in the immediate area.

Access is one of the most critical factors you need to think about.

The new dwelling will need a safe and functional access to a public highway for both vehicles and pedestrians. The local authority will be particularly concerned with visibility splays and highway safety.

Not owning your drive can be problematic and rights of way can also be an issue if there’s potential for disputes.

Does the land need to be flat?

While a flat site is easier and cheaper to build on, a sloped site is not a deal breaker. It will simply require a more creative design and more expensive foundation work.

Other key considerations include:

· Drainage and utilities: ensuring there is a way to connect the new property to water, electricity and the mains sewer, if possible. If not, an on-site, small foul water treatment plant can be acceptable.

· Impact on trees: The presence of protected trees or those with Tree Preservation Orders (TPOs) on or near the site could prevent development – or require a specific, well-thought-out design.

· Neighbour amenity: you must show that the new home will not negatively impact neighbours in terms of loss of light, privacy or outlook.

In general, local planning authorities will judge a project on design and policy fit, looking closely at aspects such as privacy, daylight, parking, servicing, access, amenity space, drainage, fire safety and the overall impact on neighbours.

Other things like TPOs, flood and drainage assessments, waste servicing guidance requirements, sustainable urban drainage systems and conservation areas must all be considered – and may constrain plans.

How do you finance the build?

When it comes to funding the project, lenders will typically require the land title to be split.

That way, they can take a charge against the land – rather than the house.

This can also make a future sale easier.

If there’s already a mortgage in place, splitting the title may trigger partial repayment – sometimes with penalty charges – so it’s worth checking whether a second charge might be more cost-effective and whether your current lender permits this.

In terms of mortgage options, some lenders offer a hybrid arrangement.

This might be a part-residential mortgage, to cover the existing loan, topped up with a self-build facility.

Specialist advice from a mortgage broker is essential to help you navigate your financing options properly.

Selling to a developer vs self-build – which can be more profitable?

If you’re getting serious about the idea of monetising your garden with a new dwelling or more, you need to decide whether to sell to a developer or go it alone.

Developers typically need larger profit margins, whereas self-build can be more cost-effective. With the right financial structure in place – and particularly with builder or contractor agreements – self-build can be much less stressful.

Self-building is potentially far more profitable, as you capture the full value uplift from gaining planning permission and managing the construction.

That said, you also take on all of the risk, financial outlay and time commitment.

Selling to a developer is a much lower-risk, lower-reward approach. The developer will pay you an agreed price – often subject to planning permission being granted – and will take on all the subsequent risk and costs of the build.

In addition to selling to a developer and deciding to self-build, you can also

consider selling to individual self-builders builders. For some homeowners, this third approach can make the most sense.

Once again, doing your homework and working out what makes the most sense for you is key.

How to minimise your tax bill

If you do end up going ahead, you may want to know whether there’s the possibility of reducing capital gains tax (CGT) when you come to sell.

The treatment of building and selling a property in your garden will depend on how the land is used and your intentions for the new home.

If your plan is to sell the new property for profit, HMRC may view the activity as trading. In that case, profits could be taxed as income, rather than capital gains, which would likely be much more costly.

If, on the other hand, you hold the property as a long-term investment, CGT treatment is more likely.

Tax is an area where homeowners need to tread carefully. If you sell the new property, CGT will usually apply. If, however, the home has genuinely been your main residence, private residence relief can be claimed.

One of my clients built a property in his garden, moved into it, and allowed his daughter to move into the original property. He may then consider selling the existing property in the future.

How long do you need to live there?

There is no statutory minimum period, but what really matters is to be able to prove genuine residence – for example, evidence of council tax and utilities, and being registered to the electoral roll. It’s important to note that token attempts to live in the new property purely to reduce tax liability are likely to be challenged by HMRC.

While there’s no official fixed minimum time you need to live in the property, you could end up in hot water if you only move in briefly, with the clear intention of avoiding tax.

As mentioned above, in some cases where the project looks like a trade – buying, building and selling with a profit motive – HMRC may assess income tax instead.

Keeping detailed records and seeking professional advice as early as possible in the process will be essential to ensure the correct tax treatment is applied.

You must think carefully.

If you’re still keen to proceed, you need to ensure you enter into any project on this scale with your eyes open.

As part of this, it’s essential to take independent, professional, legal, financial and tax advice.

While developing your garden can be an excellent way to unlock both lifestyle and financial benefits, success will often depend on thorough preparation, a clear understanding of planning, design and access constraints, and a realistic assessment of whether to self-build or simply secure permission and sell on.

If you found this article useful please check out the other articles on my blog and if you need any assistance with a planning application, etc, please get in touch.