I have a residential property and have permission to build a four-bedroom detached house next to it and divide the garden. My friend has a building company and I would like him to take the project on. I am giving him the land (worth £170,000) and he will finance and build the house. When we sell, he will pay me for the land (£150,000) and we will share the rest of the profit 50:50. Will I have to pay tax on the land in this case or will it be subject to capital gains tax (CGT) principal private residence relief? What kind of tax would be charged on the profit: CGT or income tax? 

Arthur Weller replies:  

See HMRC’s Capital Gains Manual at CG64350P and CG64800P that land attached to an occupied residence can be eligible for PPR relief from CGT. So, quite likely, the transfer of your land (e.g., at £150,000) to this building project will not trigger any CGT for you. Any profit you make on the building development (e.g., the 50:50 arrangement) will be subject to income tax. Since you say that your land is actually worth £170,000, you would be better off arguing for him to buy your land at £170,000.