My friend purchased a block in March 2008 with the intention of owner-building his principal place of residence on it.
He has lived in a caravan on the land since he started building 1 June 2008 and is due to complete the house by the end of this month. He is now going to sell the house as soon as possible on completion, as his circumstances have changed. Will he be liable for capital gains tax (this is his first land purchase and house)…someone has told him that he should definitely sell it straight away as it’s the only time he would be exempt from CGT but we don’t understand why? But that’s not why he’s selling.
Thank you in advance for your assistance.
If he has lived in the caravan on the land from the date of settlement he can sell anytime he likes without having to pay CGT because it will be exempt as his main residence.
If he did not move onto the land as soon as practical after settlement then he will have to use section 118-150 to cover the vacant land with his main residence exemption. The conditions of section 118-150 are that he must move into the house as soon as practical after the dwelling is completed and use the dwelling as his main residence for at least 3 months before entering into a contract to sell it. Note he can actually rent it out after living there for just a month or two but he cannot enter into a contract to sell until the 3 months is up.