Developing your main residence and reducing your tax bill

Your home is probably your most tax advantaged asset. Unlike many other countries the UK operates a tax exemption for your main residence, and the application of this is in many respects very wide in its scope. If you're not familiar with Principal Private Residence ('PPR') relief check out articles such as this and this As it also offers some tremendous opportunities for capital growth this means that using your home to make a profit is a popular option. The key point with this is that the taxman doesn't just give a blanket tax exemption for all property occupied as a residence. Your profit seeking motive will be taken into account when assessing whether PPR relief is due. It all depends on the degree of your development. If you buy a property because it looks cheap, grab yourself a bargain then sell it at a substantial profit after five years occupation the gain will be exempt. If you buy a property that needs modernising, live in it for five years and do it up before selling it any gain should also be exempt. However if you buy a property that is run down, add a double story extension on, occupy it for 6 months and then sell it, the Revenue may look at whether PPR relief applies. There are anti avoidance rules that allow PPR relief to be restricted where there was a profit seeking motive and this can apply either before or after the purchase . This means that you could end up with only part of the gain qualifying for PPR relief and the part of the gain attributable to the period after you had the profit seeking motive not qualifying. It's a complex area, but I've put together an analysis for members here