How a demolition job can lose your PPR
13th February 2026
Posted in Articles by Andrew Marr
Most property developers are conscious of the fact that stamp duty land tax (SDLT) rates are lower for bare pieces of land compared to actual houses. It is not uncommon for them to buy houses, with a view to knocking them down and then redeveloping. It is therefore attractive for them to buy the house after the property has been demolished, but this can have capital gains tax implications for the unsuspecting seller.
Example
Developer Co wants to buy a property off Rob for £1.5m. This would trigger a £700,000 capital gain for Rob and he has always lived in the property as his main residence. If the company simply buys the property, then it will pay SDLT of £168,750 at residential rates and this includes the 5% surcharge for companies. If it can somehow persuade Rob to demolish the property first, then the SDLT would be £64,500 at non-residential rates, representing a saving of over £100,000. Developer Co therefore agrees to reimburse Rob for the demolition costs, and both parties agree to complete the contract once the demolition has taken place.
Capital gains tax (Principal Private Residence Relief)
With a fair wind, the above strategy should work for Developer Co. It would just need to ensure that it does not do anything to accelerate the SDLT point to before demolition, such as by taking occupation of the property or paying 90% of the consideration upfront. Rob, however, needs to be careful if he is hoping to avoid capital gains tax due to Principal Private Residence Relief (PPR). Without any tax considerations, it is natural for a lawyer to draft a contract which is conditional upon Rob demolishing the property. Such a conditional contract would mean that the tax point of Rob’s disposal would be the point at which his dwelling no longer exists (because he has demolished it!). Unfortunately, it would follow that he will not get PPR because that relief requires there to be a disposal of a dwelling. Therefore, Rob’s assistance to Developer Co could have cost him £168,000 (24% of £700,000)!
Rob would want to ensure that the contract is an unconditional contract at exchange with the demolition not being what is known as a ‘condition precedent’ of the contract, but rather, a ‘condition subsequent’ (something that needs to be done before completion but not something that stops the contract from being legally binding).
Another get-out for Rob?
If Rob fails to take sufficient care with the contract and signs it with the unhelpful demolition condition, then all may not be lost. There is a little-known piece of legislation in section 24 TCGA 1992 which could allow Rob to treat the demolition itself as a disposal and reacquisition at market value. Here, he would treat the proceeds for the house as nil and the proceeds of the land as market value (which would presumably be £1.5m given that is what Developer Co is prepared to pay). The argument here would be that the disposal took place when the demolition happened and so a house was disposed of and therefore PPR was available. There would then also be an onward sale to Developer Co at £1.5m which would not give rise to any gain because there would be a £1.5m base cost.
Forbes Dawson view
Unfortunately, many homeowners do not take tax advice when they dispose of their main residence, comfortable in the knowledge that any gain will be tax-free. In more complicated transactions this level of comfort may be misplaced, and they may be in danger of putting their PPR in jeopardy. Ideally, they should get the contract straight so that they are happy that their tax point will take place before demolition. Although all may not be lost if they fail to do this, because of section 24 above, there are some complexities in that legislation which may make that a tougher sell to HMRC. Of course, one option may be to refuse to demolish in the first place, but that advice may not be particularly practical in cases where developers are offering deals at the top of the market.
