Private residents relief. Property development

WorkSavePartayy

Has anyone had any experience with cgt on property developments? I would like to jump on the housing ladder in a few months, buy a run down house to renovate sell and move on, hopefully moving up the property ladder. I intend to live in the houses whilst doing them up. I would ideally like to do 2 per year. On HMRC website it is quite vague about tax for developers with one house, it just says you need to fill in a tax Return?? Anyone got any experience with this or know anything?

antrobus

WorkSavePartayy wrote: »

Has anyone had any experience with cgt on property developments? I would like to jump on the housing ladder in a few months, buy a run down house to renovate sell and move on, hopefully moving up the property ladder. I intend to live in the houses whilst doing them up. I would ideally like to do 2 per year. On HMRC website it is quite vague about tax for developers with one house, it just says you need to fill in a tax Return?? Anyone got any experience with this or know anything?

Technically speaking, if it is your plan to buy 2 run down houses a year and develop them for a profit, then you are in business as a property developer, and thus would need to account to HMRC for the profits made and pay the tax due. (And that would be income tax, NI etc, rather than CGT.) The fact that you would be living in the properties at the time would only be relevant for tax purposes in that HMRC would expect to see that certain costs relating to your occupation of the property were not being claimed back as a business expense.

On the other hand, it is not unknown for people to buy and sell houses for a profit in a similar set of circumstances and not tell HMRC about it, on the grounds that it was their 'private residence' and so the profits were 'tax free'. Some people even get away with it. Whether any particular individual would get away with it would depend on their particular circumstances.

CLAPTON

maybe if you bought a house to live in and moved in.

you when noticed it was rather run down and decided to renovate the property (lots of owner occupiers do this)

in a couple of years time you decided you needed a different property and sold your existing home and bought a new one.

WorkSavePartayy

Thanks guys, I intend to live in each house for several months whilst I improve them. I will seek some more advice about the issue as it seems a bit of a grey area.

CLAPTON

WorkSavePartayy wrote: »

Thanks guys, I intend to live in each house for several months whilst I improve them. I will seek some more advice about the issue as it seems a bit of a grey area.

if you really do two per year then it would not be a grey area.
it would be trade and taxed as income

do you have a full time job?

00ec25

as antrobus says you might get away with it but every property sale in the UK is reported to HMRC and their computer is hardly likely to miss you regularly buying a selling property where there is a large profit element involved over a short timescale - ie you will flag as a developer and will get a SA return expecting you to declare trading activity as a business not CGT also probaly followed up soon after by a penalty for failing to declare your self empolyment status

chucknorris

WorkSavePartayy wrote: »

Thanks guys, I intend to live in each house for several months whilst I improve them. I will seek some more advice about the issue as it seems a bit of a grey area.

I have several investment properties and have lived in 4 of them, but I have really lived in them! I also have a job and a business whereas it sounds as if this might be your only or main source of income. I lived in them for 4 years, 5 years, 5 years and just under 2 years, the only reason I moved out so quickly in the last one was that I wanted to get out of London to Surrey. If you were queried (and you would certainly be queried) you would have to prove that it was your main residence and that you were not merely going through a process to evade paying tax (which is plainly your intention).

I have sold one property where I claimed the relief and one that I didn't (I didn't live there). The Inland Revenue are not stupid, they would instantly see through your plan. I would forget it, but what you could do is live in the first one for a few years then think about renting it out or selling it. I'm only guessing but I would say that if you did it more often than every 3 years you would attract their attention. As you say there are no clear guidelines, this is because they do not want to give anyone directions on how to flip properties.

WorkSavePartayy

I'm not trying to evade tax I'm just trying to understand the process! Now I have a better understanding of everything I can look into being self employed and everything that goes along with it. Thanks for the help.