Property Development - Need confirmation on CGT!

wywywywy

Hi all,

Basically I am planning to buy a property to renovate, and hopefully to make profit out of it.

Now let's say the property purchase price was 100k, and I spent another 100k (inc VAT) to renovate it, and then sold it for 300k. I am going to do it as an individual, NOT as a company. And this is a one-off.

So as far as I understand, I am liable for capital gain tax of the 100k profit only, providing I keep all receipts of expenses? (Lets forget about any allowance for now to make things simple.)
Or am I actually liable for the whole sold price - purchase price = 200k?

And because I am going to do it as an individual, am I right in saying that there is nothing I can do about the VAT?

Finally... any tips on cutting tax in this situation?

Many thanks.

Cook_County

This sounds like income tax would be due, not CGT - so you'd have to pay tax plus NI at income tax rates. You'll need to include this in your business plan.

silvercar

As a one-off you would probably get away with not calling it your trade and be liable for CGT only.

As an individual you couldn't claim the VAT.

Best way to avoid CGT is to live in it as your principal private residence. If this is not possible you would be liable for CGT on the gain not the total cost. I don't know all the rules on renovation - what is allowed for CGT and what isn't.

If you were purchasing it with someone else you would each have a CGT allowance.

johnllew

silvercar wrote: »

As a one-off you would probably get away with not calling it your trade and be liable for CGT only.

Not if he's renovating the property - it's an adventure in the nature of trade, the profit from which is more likely to be liable to income tax.

kennyboy66_2

johnllew wrote: »

Not if he's renovating the property - it's an adventure in the nature of trade, the profit from which is more likely to be liable to income tax.

Correct, but the best approach must be to

a) Live in the property as principal residence for 6 months, if possible

or

b) Rent the property out for 1-2 years

Cook_County

kennyboy66 wrote: »

Correct, but the best approach must be to

a) Live in the property as principal residence for 6 months, if possible

or

b) Rent the property out for 1-2 years

So in this scenario how would you fund the outlay of £200,000 without the mortgage costs eating up the potential profit over the six months to 2 years?

silvercar

If you live in the property you could get a rental income on your current home. If you rent it out you will have a rental income.

Bottom line is that you have to budget for voids, for work costing more and taking longer than expected and the property taking time to sell. If you don't budget for these things you can get into a right mess.