Capital Gains Tax

withnail71

??? ??? ???I am looking to buy a second property to do up and sell on. At the moment I am joint owner of our house with my wife. The house we are living in is worth around £320,000 and we owe nothing on it. The property we are looking to buy is around £70.000. I understand any profit we make on our second property is liable for capital gains tax at 40%. Currently my wife doesnt work therefore has no income, I currently earn around £24000 pa, can anyone help me out with a way round paying minimum tax when we resell? Any help would be appreciated. ??? ??? ???

THANKS ???

WHA

Firstly, don't automatically assume that you'll be liable to capital gains tax. Capital gains tax is charged on investments, however, you are not merely "investing" in the second property, but are "doing it up". Although unlikely, the Inland Revenue could argue you are trading as a property developer, in which case you would be liable for self employed income tax and national insurance on the profit you make. BUT, if you did it up and then rented it out, you would probably avoid that problem as it is then clearly an investment - the investment income being rent received.

You need to do the basic planning, i.e. put it in joint names, so that your spouse is taxed on half the profit, so utilising her personal allowance, and lower rate tax bands. You won't automatically pay tax at 40% - that is the highest rate you would pay, but some of the profit would be taxed at basic rate to use up your lower and basic rate tax bands (upto say £35k p.a.).

Hope that helps. I would suggest you speak to an accountant before making any decisions as anything to do with property is very hard and expensive to change afterwards (i.e. if you need to change ownership etc at a later date for tax planning reasons). Shouldn't cost too much to get things right from the start.

withnail71

Thanks very much for your help much appreciated? It is quite a complicted matter should help the fact the wife doest work