What Are The Tax Implications Of Building A House In My Garden?

If you are wondering about the possible tax implications of building a house in your garden, you will not only find the answer to your question in the following blog post but also detailed guidance on what to be prepared for and how to go about it.

What Are The Tax Implications Of Building A House In My Garden?

There are many tax implications for building a house in your garden. These can vary depending on your circumstances; and whether you intend to build the house yourself or seek professional services.

For instance, if you build a house by yourself in your garden and later on sell it at a profit, you will be taxed as a property developer and the profit you earn will be taxed at a rate of 47%. 

If you build and hold on to the house in your garden as an investment, you can avoid this tax. 

However, if you do sell the property (just the house in your garden or the entire area including your main house), there will be a Capital Gains tax of 28% due on the gains you make from the sale.

On the other hand, if you build a house in your garden to rent it out to tenants, the HMRC will consider this as an investment for income generation. Therefore, the income that you generate through rental payments will be subject to taxation.

You must also be prepared that the house that you build in your garden will be subject to council tax and may have a separate band assigned to it as compared to your main residence.

If I Am Building A House In My Garden Do I Have To Pay Council Tax For It?

Yes, if you are building a house in your garden, you will have to pay council tax. The rate for council tax and the band assigned to self-contained units or annexes can be separate from what is applied to the main residence; however, the property evaluation method will still be the same. 

In this case, you can expect to be issued two separate council tax bills; one for each of the properties. If you get any discount on council tax for your main residence, it cannot be applied to the self-contained unit or house built in your garden.

Separate dwellings are generally assigned Band A for Council Tax. This means that the lowest rate of Council Tax in the area applies to the property. 

However, if the house built in your garden meets the following conditions, you may be able to get a 50% discount on your council tax bill:

  • it is part of a single property and includes at least one other property
  • it is being used as part of the main residence by the person who is liable to pay council tax
  • a family member occupies the property

If I Am Building A House In My Garden Will It Be Considered A Separate Dwelling?

If you are building a house in your garden, it may be considered a separate dwelling in case of the following situations:

  • it is built to be used as a separate living accommodation without a link to the main home
  • it has independent cooking, toilet and washing facilities that are not shared with the main home
  • it has its entrance from the main home; such as an external door

If you are still unsure of how to proceed, you may need the advice of your local council authorities.


The above discussion lays down the potential tax implications in case you choose to build a house in your garden; which can vary based on your circumstances. However, in either case, it may be best to discuss your situation with a tax adviser such as TaxAid before you start with the construction. 


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Building A Property In Your Garden: The Potential Tax Implications