Capital Gains Tax On Property Developing

penniestopounds_3

I understand that CGT is 40% on sale of 2nd property that is not your main residence. If I were to form a company and do property developing full time does the CGT lower to 19%?

PoorDave

CGT is not automatically 40%. Depends on your other income.

The 19% you're talking about is probably simply corporation tax, not CGT as such.

Not sure it's as simple as you make out!

How would you raise the money for your company to buy the property for you to develop?

penniestopounds_3

I would mortgage my house with an interest only mortgage. I understood CGT would be 40% regardless on any other property sold that you have in addition to your actual home. I know it is not corporation tax, I have heard property dev companies are able to pay less % than 'the man in the street'. Just wanted to know if anyone had come across more info.

PoorDave

My feeling is still that on day 1 of having a property developing company, you would have zero funds in that company, and the company wouldn't have an income as such, so why would anyone lend to it?

Then you start thinking about buying the house yourself, as you're the one with the existing income to borrow against.

I think you need to talk to a mortgage broker, and if you're going down the company route, an accountant.

The gain liable for CGT is price sold minus price paid, after taper relief (look up HMRC for actual revenue site on this), then each individual has a £8800 per annum allowance, so if your gain after TR is 10k, the first 8800 is tax free, so tax paid on 1200. Rate of tax on the 1200 is calculated by placing this amount "on top" of your other income, so it will be taxed at the rate for your salary plus the 1200 in this case.

My point about it not being 40% automatically applies if your other income put you well below the 40% threshold, which off the top of my head is about 38300.

If you're "trading" i.e. doing lots of properties, you can lost the 8800 allowance. Again, talk to an accountant - they will have come across more info

hungary97_2

if you are doing numerous propeties with the view to gain a profit then it may not even be capital gains but trading income and therefore taxable as self employed (partnership) income.

You do need to speak to an expert as soon as possible as by doing so you could save yourself thousands in tax leave it to late and there is not much tax planning that can be done!