Property developing - what tax to pay?

ManicMum

Hello

I am hoping to sell a property I own next year if market picks up a bit. My husband and I are thinking about buying a place with the profit :rotfl:that needs doing up and then selling on. Yes, we have been watching too many episodes of Homes Under the Hammer! Anyway, just wondered if someone can tell me, do we pay normal tax on any profits or is it CGT?

Thanks

ManicMum

Can i clarify i am enquiring about any profits on a property we do up and sell. I know we will be liable for CGT on the house we sell but hopefully that will be reduced to zero as we have lived in the property plus our annual allowance.

thanks

Gwhiz

Too many unknowns and vairables to answer. Suggest you talk to your accountant!

silvercar

On another forum, the general feeling was that if you buy a property to do up and sell you are "trading" and could be liable foe income tax and NI. If you buy a property to let out then you would be liable for CGT.

getting a link, back soon.

silvercar

Thread here (on another forum):

http://www.landlordzone.co.uk/forums/showthread.php?t=24130

Revenue bumpf here:

http://www.hmrc.gov.uk/manuals/bimmanual/BIM20200.htm

chappers

income tax

Bermuda_John

income tax on the rent received after allowable expenses such as mortgage interest, expenses exclusively incurred as a result of the property

you would be subject to CGT on any sale

however it is unclear from your description and it sounds like you are going to live in it while you do it up .... i think you will have to ELECT this property as your PPR liek the politicians did when they did the so called tax dodges as part of their expense claim.

not a dodge, just clever tax planning

Gwhiz

Bermuda_John wrote: »

income tax on the rent received after allowable expenses such as mortgage interest, expenses exclusively incurred as a result of the property

you would be subject to CGT on any sale

however it is unclear from your description and it sounds like you are going to live in it while you do it up .... i think you will have to ELECT this property as your PPR liek the politicians did when they did the so called tax dodges as part of their expense claim.

not a dodge, just clever tax planning

Except that if HMRC believe you bought for a profit they will not allow it to be nominated as PPR. Hence I suggested speak to accountant as too many unknowns - other property interests being just one.

Bermuda_John

im an accountant (not tax though!!) but im 99% certain you can name any property as your PPR but you have to live in it for 6 months ....... i think

roger196

If you are carrying on a trade or an adventure in the nature of trade, you are liable to income tax under Schedule D case1. (the names may have changed since the legislation has been updated).
The following are the indicia of trading
1 profit seeking motive
2 nature of the asset
3 work done on the asset
4 interval between purchase and sale
5 method of finance
6 number of transactions
7 links with existing activities
8 destination of sale proceeds
there are two more which i can't remember ( years since I did this in practice).
Have a look at Tolleys Tax Cases for a summary of trading cases and whether isolated transactions are still trading.
Remember income tax takes priority over CGT. From a practical point of view, there is no point in HMRC contending trading if you are making losses.

ManicMum

Thanks guys for your help.

We were thinking of buying a flat or house as we live in cheap part of the country, doing it up and selling on, just to see how much profit margin there was and whether could make an income from it or at least a good second income.

We would not be living it. Not thinking about renting it out at this stage. Just trying to find out background info re. tax status before embark on any such adventure.

Thank you for your help/links etc.