Tax on income from house sale

mholty

Hi

Hopefully someone can advise. I'm currently going through the process of buying a house that I am planning on selling to developers (it's in need of renovation).

I've been reading up (please correct me if i am incorrect!) and any profits made on the sale would be subject to income tax rather than capital gains tax.

I run my own limited company and pay basic rate tax (up to the limit of higher rate tax). So ideally wouldn't want to put the house in my name as I want to keep my tax down. I have a wife (whose income for 2013/2014 tax year has been 10k due to maternity) and 2 children.

My question is - I would like to keep the tax down for any profits made, should I be putting the house in my wife and children's name? Anyone have any advise on what I should do to keep the tax down on any potential profits made from the future sale of the property?

Many thanks :beer:

(I posted it in the wrong forum earlier - but was advised to put in my wife's name, is this the best option here? The house will probably be sold in the next tax year)

uknick

Is this house transaction part of your business activities? I assume not as you talk about putting it in your wife's name.

Therefore, to me it looks like selling a property that is not your principle residence, therefore CGT.

Who said it is income tax on the "profits"?

purdyoaten

uknick wrote: »

Is this house transaction part of your business activities? I assume not as you talk about putting it in your wife's name.

Therefore, to me it looks like selling a property that is not your principle residence, therefore CGT.

Who said it is income tax on the "profits"?

I would. The op has clearly stated that it is his intention to purchase a dilapidated property, do it up as quickly as possible and sell on at a profit.

The main motivation at the outset was to make a short term profit - in my view, HMRC would make a strong case to regard this as trading under the badges of trade.

There is no interest by the op in purchasing the property, doing it up, renting it out and treating it as an investment. He has been very clear reagarding his motives.

http://www.hmrc.gov.uk/manuals/pemanual/pe5210.htm

Property trading

If you buy and sell property as your business you pay Income Tax rather than Capital Gains Tax on any profits you make from the property. This applies whether you are a sole trader or in a partnership. This may include a one-off purchase and sale of a property. You usually pay any Income Tax due by completing a Self Assessment tax return.

CLAPTON

mholty wrote: »

Hi

Hopefully someone can advise. I'm currently going through the process of buying a house that I am planning on selling to developers (it's in need of renovation).

I've been reading up (please correct me if i am incorrect!) and any profits made on the sale would be subject to income tax rather than capital gains tax.

I run my own limited company and pay basic rate tax (up to the limit of higher rate tax). So ideally wouldn't want to put the house in my name as I want to keep my tax down. I have a wife (whose income for 2013/2014 tax year has been 10k due to maternity) and 2 children.

My question is - I would like to keep the tax down for any profits made, should I be putting the house in my wife and children's name? Anyone have any advise on what I should do to keep the tax down on any potential profits made from the future sale of the property?

Many thanks :beer:

(I posted it in the wrong forum earlier - but was advised to put in my wife's name, is this the best option here? The house will probably be sold in the next tax year)

you can't put property in children's (under 18) name but your wife can buy it

if she buys the property with a view to sell then HMRC would probably consider this trade and so be liable to income tax rather than cgt

Prothet_of_Doom

You need to consult an accountant.

If it were me, I wouldn't involve my children's names, and I'd probably lend my Ltd company the money to buy it, employ my wife on paye, up to the 40% limit, repay my loan back to me and take the extra income over 2 or 3 tax years that way.

Or I'd keep it in my name, not draw any salary or dividend from the Ltd company and keep my tax liability as now, but with a pot of money in ltd company, for future investments.

But I'd take 5 or six ideas to my accountant, and see what he says.

Whatever, I wouldn't put anything in my kids names.

mholty

Thanks for all the comments. Absolutely brilliant.

Yeah i have no intentions on renting the property out. I don't think i even have the intention to renovate. I've bought at a price off someone who previously owed me money so its complicated but I feel there is a sizable profit in the property - even if I just sell on to a developer.

I will give my accountant a shout. I like the idea of putting it in my ltd company.

Also - I won't put them in the kids names. Many thanks!

Prothet_of_Doom

As an aside, if your of the right age, paying loads into a pension, and taking it out as a tax free lump sum at aged 55 apparently works well.

(I guess if you are about 50 and are happy to tie it up for 5 years)

00ec25

Prothet_of_Doom wrote: »

If it were me, I wouldn't involve my children's names, and I'd probably lend my Ltd company the money to buy it,

do the articles of association of your limited company empower it to engage in property trading activity?

you may not think it matters but companies house will if they catch the company acting outside its powers

jimmo

uknick wrote: »

Is this house transaction part of your business activities? I assume not as you talk about putting it in your wife's name.

Therefore, to me it looks like selling a property that is not your principle residence, therefore CGT.

Who said it is income tax on the "profits"?

I wouldn’t. In this case we have a strong pointer to trading where there is an apparently clear motive to realise a profit from the outset.
http://www.hmrc.gov.uk/manuals/bimmanual/bim60030.htm
However that is only one pointer amongst many.
http://www.hmrc.gov.uk/manuals/bimmanual/BIM60025.htm
On balance I would think that HMRC would not base an Enquiry on that point alone but there are lots of other aspects to this that need to be explored.
Regardless of whether this is declared as a capital gain or trading income if a derelict property is bought and sold at a significant profit in a short space of time that is very likely to get HMRC’s nose twitching so the chances of an Enquiry are significantly greater than normal.
As the OP has a limited company the enquiry is likely to cover both his personal tax affairs and the company’s so its not going to be quick and its not going to be cheap.
First and foremost the OP has implied that he is getting the property cheap because the vendor owed him money.
That begs the question of what is the consideration the OP is giving the vendor. Is it just cash or cash plus the discharge of the debt?
If the consideration includes the discharge of a debt then who was the original creditor?
In other words should the cancellation of the debt be recorded as taxable trading income in the hands of the OP personally, perhaps as post cessation receipts from a previous self-employment or trading income of the OP’s limited company?
If the original debt was a personal loan by the OP it is really important to be able to prove it.
Whilst it may be complicated it is important for anyone giving advice to understand how the vendor’s debt arose before moving on. There also question marks about the vendor’s potential liability for his sale and whether that is important to the OP.