Buy to Let - How I made £100 @ month

missk_ensington

Pennywise- I'm not sure exactly how she goes about this, but I don't think the company owns the companies, (it isn't a Ltd company or anything) she owns the properties in her name, but they are collectively a business and therefore the income and expenditure is assessed collectively on her self assessment tax returns.

Her main residence has no mortgage on it, but she is thinking of moving into one of her other properties and renting her Penthouse out as it is too big for just her and my brother. She isn't doing this for tax reasons, but just because she fancies living somewhere else. I'm fairly sure that if she moved into one of the properties and lived there a while and decided to sell it, it would be regarded as her main residence.

In relation to me living in my properties whilst developing them, how would anyone know its being done as a profit making business? It is quite feasible that for one reason or another someone might move on a regular basis either beacause of work or family or splitting with a partner.

Also with regard to the 2 years you have to live somewhere before paying CGT, what about those people who buy a house, move in and then have to sell up and move because they lost their job and their new job is 100 miles away, or some other real and genuine reason??? Would you still have to pay CGT?

lowis

QUOTE from REALWILDONE: Im not upset. Im livid. This country is losing all it's intelligence to other countries and importing morans

i bet the 'morans' can spell though - better go back and edit, the only definition of moran I could find was as follows from wikipedia:

noun: a person of sub-moronic* intelligence; one so moronic** as not to know the proper spelling of the word "moron"
en.wikipedia.org/wiki/Moran

Tassotti

missk_ensington wrote:

Her main residence has no mortgage on it, but she is thinking of moving into one of her other properties and renting her Penthouse out as it is too big for just her and my brother. She isn't doing this for tax reasons, but just because she fancies living somewhere else. I'm fairly sure that if she moved into one of the properties and lived there a while and decided to sell it, it would be regarded as her main residence.

Also with regard to the 2 years you have to live somewhere before paying CGT, what about those people who buy a house, move in and then have to sell up and move because they lost their job and their new job is 100 miles away, or some other real and genuine reason??? Would you still have to pay CGT?

If she moves out of 1 property into another, then rthe original property will have CGT applied to it (if rented for more than 3 years)

You cannot rent out a property for 10 years, then move in and claim it as your main residence without paying CGT.

There will be some relief, but the 10 years it was rented out will be subject to CGT.

Hmmm..not very good explanation there, but I am not a tax accountant.

missk_ensington

Okay then , well what if a person has 2 properties, their own, and a rental. After say 5 years of renting one out they decide that their main residence is too big now the kids have left and decide to sell main residence and live in rental property, what happens here?

You may be right in what you're saying, but I know a huge lot of people who move into their rental for 2 years before selling and have not paid CGT. Perhaps proving CGT is owed is not something HMRC is too hot on?

Tassotti

It is called tax fraud/evasion and can lead to a prison sentence. If they are prepared to take the risk, that is up to them.

dunstonh

Perhaps proving CGT is owed is not something HMRC is too hot on?

It is something that they have raised the stakes on and they are spending more resources into investigating. Its going to be a big income provider to them in future. With computerised land registry it makes their job a lot easier as well.

In April, a 39 year old landord who did not declare rental income on his tax returns from 1999 onwards was sentenced to 12 months imprisonment.

Another issue to contend with is the Tenancy Deposit Protection Scheme being introduced in October this year. This mandatory scheme will see many landlords having to use the services of letting agents. A further drain on the rental income.

missk_ensington

Yes, but I'm not suggesting that one rents out a property and doesn't declare it because I know full well this leads to disaster. I'm saying they live in their rental property for 2-3 years before selling to make it their main residence. I don't think HMRC would delve into this, I don't think they would ever become ware of it as it would just be a normal house sale.

If they did investigate, would it not be 'Yes I used to rent this house out a few years ago, of which I paid tax on and declared everything, but i decided I liked the house and moved into it, I lived there 3 years and now we're selling because I want to live in Devon by the sea' Whats the problem with that?

Pennywise

missk_ensington wrote:

Pennywise- I'm not sure exactly how she goes about this, but I don't think the company owns the companies, (it isn't a Ltd company or anything) she owns the properties in her name, but they are collectively a business and therefore the income and expenditure is assessed collectively on her self assessment tax returns.

Her main residence has no mortgage on it, but she is thinking of moving into one of her other properties and renting her Penthouse out as it is too big for just her and my brother. She isn't doing this for tax reasons, but just because she fancies living somewhere else. I'm fairly sure that if she moved into one of the properties and lived there a while and decided to sell it, it would be regarded as her main residence.

In relation to me living in my properties whilst developing them, how would anyone know its being done as a profit making business? It is quite feasible that for one reason or another someone might move on a regular basis either beacause of work or family or splitting with a partner.

Also with regard to the 2 years you have to live somewhere before paying CGT, what about those people who buy a house, move in and then have to sell up and move because they lost their job and their new job is 100 miles away, or some other real and genuine reason??? Would you still have to pay CGT?

You said your mother used a company - which is why I was talking about company taxation. Now in fact you say she isn't a company. So if she's not a company, she owns these properties personally. A company is not a person, it is a company, a separate legal entity. So my comments are largely irrelevant.

HMRC will be very interested if they keep seeing you change your address and will use the land registry records to pick up on people moving frequently. They have finally realised the potential for tax leakage and are now taking action to target the tax losses.

If you have owned a property for 10 years, and only lived in it for say the last 3, then 7/10ths of the overall profit would be liable to capital gains tax, only the last three years 3/10ths would be exempt under PPR rules and you would also get some lettings and taper relief. Moving into a house a few years before selling does not make it exempt from CGT - it will reduce the gain which may be covered by your annual exemption.

As for whether you are "trading" in property and wrongly claiming the PPR exemption, each case would be decided on its facts. If someone genuinely has a reason to sell their home quickly, then they wouldn't be targetted. BUT if there is a pattern of, say, buying a house, living in it and doing it up, selling it and buying another, say every year, then HMRC are quite likely to pick it up and then the burden of proof would be on you to proof that you weren't doing it for profit.

HMRC have a clause in their PPR rules which basically says that PPR is not granted if the motive for buying the property was to make a profit. In those cases, profits are trading profits and liable to tax and NIC. If you do this occasionally, say once every 3-5 years, there would probably be no problem, but if you have a pattern of behaviour which suggests you are motivated solely by profit, then they'll try to disallow the PPR and other CGT reliefs.

missk_ensington

I dont know how my Mum operates, would she be a sole trader? I know she operates under the company/business name and does self-assessment.

If you could prove you had to move after a year becuse of a job, would this satisfy? I've moved house about 8 times in the last 4 years, and that is nothing to do with property and making profit purely circumstance and was renting at the time.

Was with son's Dad for a while in a flat, split up moved out, Was in a flat I rented alone and hated it, in another which was fine until I moved in with partner and moved away, then we split and he left and I got my current house on my own, but now this is too far from my 70 mile away uni so will move again next Summer, then perhaps I might transfer to a different uni thats another legit move, then when I graduate go back to my home town, thats another house move.

Would these be legit reasons for moving? And as for profit, most people are going to make some profit over a year in a house, and most people will have work done on a house they buy even if its only repainting the walls.

Under these frameworks many people who are not trying to make a profit and are completely innocent will come under the spotlight

dunstonh

I don't think HMRC would delve into this, I don't think they would ever become ware of it as it would just be a normal house sale.

The Tenancy Deposit Protection Scheme rules will provide them with the information they need as this has to record the details of the landlord and the dates involved. As this will be mandatory from October, they will have a full electronic audit trail on these things.

Buy to let investors will have to disclose who owns the property, the amount of rent received, the amount of deposit and the full details of the tenant and landlord. On sale of property, the land registry forms require disclosure of information linked to that.