Renovating question

tightgit_2

Just had an idea which may be stupid, but if you bought a run down house,did it up with the intention of selling in 6 months at a profit, could this be classed as a business ?. Therefore if you had an interest only mortgage, I think this would be tax deductable. Or does the fact that you are living there mean that you could not treat it as a business ?

Any advice please ?

Robert_Sterling_3

This is not legal or financial advice and I could be wrong but.....

It not only appears to me to be a business but it seems to be an honest and commendable business.

Good luck.

John_M_Business

Yes. This is a business, but remember that you would have to pay income tax on your gains (either if you took them as a 'sole trader', or as pay from your business). I don't think you can employ yourself at cost, get the 'business' to pay the mortgage and then claim it as your property.

If you didn't treat it as a business, then your gains would NOT be taxed. You may have to pay the mortgage, but the opportunity is far higher IMHO.

Fairdo_2

As I don't specialise in that particular area anymore, I am not sure if there are particular timescales involved and I am fairly confident that it is not, but if you have been living there during the renovation, I don't believe you would be liable to Capital Gains Tax.

Bear in mind the legal costs as well as renovation costs and if you buy at over £120,000 you would also be liable to pay stamp duty on purchase, so make sure you factor ALL costs.

tightgit_2

John_M_Business wrote:

Yes. This is a business, but remember that you would have to pay income tax on your gains (either if you took them as a 'sole trader', or as pay from your business). I don't think you can employ yourself at cost, get the 'business' to pay the mortgage and then claim it as your property.

If you didn't treat it as a business, then your gains would NOT be taxed. You may have to pay the mortgage, but the opportunity is far higher IMHO.

I think you are correct. As I think we could relistically make a £30000 profit so I would have to pay approx. £7.500 in tax. But would we be able to get the mortgage easier in the first place if it was treated as a businessi ? Or would it have to be a business loan ?

Fairdo_2

tightgit wrote:

I think you are correct. As I think we could relistically make a £30000 profit so I would have to pay approx. £7.500 in tax. But would we be able to get the mortgage easier in the first place if it was treated as a businessi ? Or would it have to be a business loan ?

Depends what your overall circumstances are. You may be able to get a standard residential mortgage (if you are planning to live there during the process) if you do not have another mortgage at time of completion. Make sure it is penalty free though.

I would suggest you speak to an Accountant about the pro's and con's of how best to package it.

ioscorpio

You are probably better off getting a residential mortgage if you are going to live in the property whilst renovating it. Many people have used this method to move up the property ladder and I'm sure that never even considered it as being a business.

It might be different if you are a builder and are buying your materials through your business and/or are claiming back your VAT on materials.

Until you have completed your first project, how do you know that you won't decide to live in the property and not want to sell it, or that you want to make property developing a career, there's plenty of folks on Property Ladder etc. who are put off doing it full time after giving it a go.

theGrinch

my instincts tell me that if you did this through a limited company then it certainly would be considered a business, but if you did it under your personal name its more opaque.

if you declare this as your main residence (PPR) during your ownership and register with the council tax and utilities etc, then arguably, any profit would be tax free. If you owned another property as your PPR, then you could claim a CGT exemption on part of the profit, provided your relief is un-used for current tax year.

If you did 2 or 3 of these renovations over 18-months under PPR, then profits may be tax exempt. If you continued to do this, the revenue will argue you are carrying on a trade and you will be liable to income tax and you can offset costs.

Of course, you can ignore all I have said and declare this is a trade and pay tax but why volunteer to pay more tax that you may be liable for on top of all the other costs?

tightgit_2

iomexico wrote:

You are probably better off getting a residential mortgage if you are going to live in the property whilst renovating it. Many people have used this method to move up the property ladder and I'm sure that never even considered it as being a business.

It might be different if you are a builder and are buying your materials through your business and/or are claiming back your VAT on materials.

Until you have completed your first project, how do you know that you won't decide to live in the property and not want to sell it, or that you want to make property developing a career, there's plenty of folks on Property Ladder etc. who are put off doing it full time after giving it a go.

I would not want to do this all the time, but I have a property in mind, I know what condition it's in and I know how much the same houses are selling for when they are done up. I would not want to live in it forever as I do not particulary like the houses. We have our own building company so we know what it would cost to do up and we could obviously do it cheaper at trade etc. What I was concerned about was being able to raise the increased mortgage. If we could show that we would be able to offset the repayments against tax and that it would be short term they would be more likely to give us the amount we require. That's why I am asking for opinions so that I can consider what may be the best option. I will run it past our accountant as well.