2 properties, whats the deal with paying tax?

jmad_2

I own a property which I own outright - mortgage free.

Recently I purchased a second property at an auction which I am developing with a view to sell. I remortgaged my existing property in order to finance the purchase of property 2. I have a partner (not married) of 13 years but both properties are in my name.

I am expecting to make approximately £25,000 on the redevelopment project. How much tax will I have to pay and is there anyway of reducing this bill?

Jason

rizla01

Hi Jason,

You will almost certainly need to spk to an accountant but you can run this as a business and pay Income Tax or simply sell it on and pay CGT.

LESS any costs involved in doing it up so you need plenty of bills to bring down the profits on which your tax liability is based.

Dunstonh will be the person to ask on this one, I think.

jmad_2

Thanks so much. Am new to this whole forum thing so how do I contact Dunstoh?

Jason

rizla01

Actually, Ive corrected it now but it's DUNSTONH.

Oh, you just sit around on here and he will find you.:)

Gorgeous_George

Best to have the 2nd property in two (or more) names. This year, the CGT allowance is £8,800 per person.

Keep receipts for everything you buy for the property. Keep records of all the mileage you accumulate during the restoration work. Interest on the cost (house price at your mortgage rate) should be claimable against tax.

Check with local tax office or speak to an accountant.



GG

jmad_2

Again, thanks very much. How about instead of putting the 2nd property in both mine and my partners name, I get my partner who is supervising the development (he has no other employment) to invoice me for a fee for his services in managing the project. Is this an option?

Mrs_pbradley936

jmad wrote:

Again, thanks very much. How about instead of putting the 2nd property in both mine and my partners name, I get my partner who is supervising the development (he has no other employment) to invoice me for a fee for his services in managing the project. Is this an option?

No, sorry to say it is not.

Mrs_pbradley936

The only way not to have to pay the tax would be to move into the new place and sell the old one. You would have three years in which to do this.

Ian_W

You'd probably be better posting this on the cutting tax board lower down the main page.
With the greatest of respect to dunstonh [mean that sincerely, folks] he's a very helpful and knowledgeable IFA rather than a tax specialist - whereas some accountants post on the other board.
From what I've seen posted in the past the choice between CGT and income tax isn't yours to make - if you're trading in property it's income tax which is less beneficial as you have an annual £8.8k CGT personal allowance.
Can't see any reason you couldn't pay your OH a fee to oversee the project - but, of course, he'd have to pay tax on it - so it reduces your tax bill but increases his. Benefit?
I think you do need an accountant really.

rizla01

Actually, the TAX OFFICE are usually very helpful in giving information too but the cant advise.

As far as I am aware you CAN choose between CGT and Income Tax.

You have to establish whether this is a full time business in which case you will pay Income Tax or just part-time profit where CGT comes into play unless as said previously, you treat it as your main residence for 2+ years. (Used to be 1 year)

I have done precisely that and have moved from 'done up' homes into virtual wrecks (But liveable) for my last 4 properties as well as buying properties at auction and spinning them.

Also, I disagree with the previous post re employing your partner.

We did precisely what you are suggesting. She employed me and paid me just under my allowance and reduced her tax liability accordingly. Can't see that this is different from employing an outsider.

Again, check with the tax office. (It's free! )

jmad_2

Thanks all, love this forum.

Rizla01, can I ask, did you have to register yourself as self-employed?

Ta

Jason