A developer offering good money for the bottom third of a large garden, with outline planning permission already secured, looks to most homeowners like selling a slice of their own home. It's the same title, the same address, the same garden they've mown every summer. HMRC doesn't automatically see it that way, and the gap between those two views is where private residence relief either holds up completely or leaves a genuine tax bill behind.
The default: half a hectare, house included
Private residence relief exempts the gain on a main home and, separately, on the garden and grounds that go with it, but only up to a permitted area. That default is half a hectare, around 1.2 acres, and the footprint of the house itself counts toward that figure rather than sitting outside it. Most suburban and market town plots never come close to the limit. It's the larger detached properties, converted farmhouses, and homes on the edge of a settlement with genuine paddock or orchard land attached where the permitted area starts to matter, and where a garden sale is big enough to be worth structuring properly.
Claiming more: "required for reasonable enjoyment"
A larger permitted area can still qualify where it's required for the reasonable enjoyment of the property, judged against the size and character of the house as it stood at the time of the disposal, a test set out in the tribunal decision in Longson v Baker. A substantial country house with paddocks used for horses genuinely tied to the property's character can support a bigger claim than a standard estate house with an oversized garden simply because nobody's ever built on it. HMRC treats this as a case-by-case argument to be evidenced, not a figure to be assumed, and the evidence needs to exist before a sale is agreed, not assembled afterwards once a valuation is under enquiry.
When the plot is bigger than the permitted area
Where the land being sold exceeds whatever permitted area applies, the gain doesn't split cleanly at the boundary of what's exempt and what isn't. It has to be apportioned between the two on a just and reasonable basis, generally by reference to the relative value of each part rather than a simple division by acreage. Development land carrying planning permission is disproportionately valuable compared with the same physical area of lawn closer to the house, so a naive area-based split understates the chargeable portion of the gain almost every time, and it's the value-based apportionment HMRC expects to see, not the area-based one that feels intuitive.
Selling to a connected buyer changes the starting number
Where the buyer is connected to the seller, family members, or a company the seller controls, the actual price agreed on paper is irrelevant for CGT purposes. Market value is substituted instead under the connected persons rule. A garden plot sold cheaply to a relative or a family investment vehicle, with a view to it being sold on at full development value shortly afterwards, doesn't reduce the original seller's gain at all. The gain is calculated as though full market value changed hands on day one, which makes that kind of two-stage sale considerably less useful as planning than it first appears.
When it isn't a capital gain at all
The sharper risk sits with private residence relief being restricted or denied outright where a property was acquired wholly or partly with a view to realising a gain from disposing of part of it. Buying a house specifically because the garden has, or could obtain, planning permission for a separate dwelling, with the plot listed for sale within months of completion, is exactly the pattern HMRC's guidance flags. In the clearest plot-splitting cases the activity can be recharacterised as trading altogether, taxed as income rather than gains, with no residence relief in point at all regardless of how the permitted area calculation would otherwise have come out.
What we're actually telling clients
Get an apportionment valuation done by a surveyor before agreeing a price, not after HMRC opens an enquiry, because it's the value split that decides how much of the gain is actually exempt. Keep a genuine record of how the garden's been used and why any larger permitted area claim is justified, ready before the sale rather than reconstructed for it. And if the house was bought recently, or the plan for the garden was already formed before completion, treat that timeline honestly, because it's precisely what determines whether this is a private residence relief question or an income tax one.
Common questions
How much garden can I sell without losing private residence relief?
The default permitted area is half a hectare, around 1.2 acres, including the footprint of the house itself. A larger area can still qualify if it's required for the reasonable enjoyment of the property given its size and character, but that's a claim HMRC scrutinises closely rather than one that's assumed.
How is the gain worked out when I sell more garden than the permitted area covers?
The total gain has to be apportioned between the exempt permitted area and the excess on a just and reasonable basis, generally by reference to the relative value of each part rather than a straight physical split. Only the portion attributed to the permitted area benefits from private residence relief; the rest is a chargeable gain.
Does it matter if I sell the garden to a family member or a company I control?
Yes. Where the buyer is connected, the actual price agreed is irrelevant for CGT purposes. Market value is substituted instead, so structuring a low headline price to a connected buyer with a view to a quick resale doesn't reduce the gain the seller is taxed on.
Could HMRC treat the sale of my garden as trading income instead of a capital gain?
It can happen. Where a property was acquired wholly or partly with a view to realising a gain from disposing of part of it, private residence relief can be restricted or denied, and in more clear-cut plot-splitting cases HMRC can argue the activity is trading altogether. That's taxed as income, not as a capital gain, and no relief applies at all.
Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and landlords across Merseyside, Greater Manchester, Lancashire and Cheshire on tax structuring, developer VAT, SDLT and the long-view decisions that compound over the life of a portfolio.
This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.