If you build a dwelling on land you already own, the land normally is not exempt from capital gains tax (CGT) until the dwelling becomes your main residence.
However, you can treat the land as your main residence for up to 4 years before you move in if you:
- have an ownership interest (other than a life interest) in the land
- build, repair or renovate a dwelling on the land, or finish a partly constructed dwelling
- move into the dwelling as soon as practicable after it is finished and continue to use it as your main residence for at least 3 months.
The same option is available if you build a new dwelling to replace a dwelling that was demolished or destroyed. You can treat the vacant land as your main residence for up to 4 years while building your new home.
If you choose to treat land as your main residence until your home is finished:
- the land is exempt from the time you acquire it or for up to 4 years before you move in, whichever is shorter
- if you or anyone else occupies a dwelling that is already on the land, the exemption period does not start until that dwelling is vacated
- you cannot treat any other dwelling as your main residence for the same period (except for a limited time if you are moving from one main residence to another)
- you cannot choose to have a shorter period of exemption for the new dwelling in order to exempt your old home for part of the construction period.
Example: treating land as main residence
Ahmed built a new dwelling on a vacant block of land he bought, and moved from his old home into the new one. His key dates are:
- 3 November 1995 – bought old home
- 3 September 2008 – bought land for new dwelling
- 2 September 2022 – finished building new dwelling
- 1 October 2022 – sold old home
- 7 October 2022 – moved into new dwelling (this was as soon as practicable after completion).
Ahmed can treat the new dwelling as his main residence from 7 October 2018. This is the 4 years immediately before the new dwelling actually becomes his main residence.
If he chooses to do this, Ahmed's old home is exempt:
- from 3 November 1995 (when he acquired it) until 6 October 2018 (just before he began treating the dwelling under construction as his main residence)
- for the 6 months before he disposed of it – that is, from 1 April 2022 to 1 October 2022 – because during this period he can treat both dwellings as his main residence under the rules for moving from one main residence to another.
The exemption can still apply if the owner of the dwelling under construction were to die at any time between:
- entering into contracts for the construction work
- the end of the first 3 months of residence in the new home.
The surviving joint owner (or if none, the trustee of the deceased estate) can choose to treat the land and dwelling as the deceased's main residence. The conditions are the same, except that the exemption period ends when the deceased died.How to get the main residence exemption for your land while you build your future home.