How to Avoid Capital Gain Tax on 2nd Property sale

jingle_jangle

Hello.
Would like some advice on a second property sale.I purchased a second property just under six months ago and was planning to rent it out but now wish to sell.Based on a valuation and offer made, it is valued about 15k higher with renovation work completed.

I am mortgage free on my main residence.Is there any way to avoid paying the CGT on the second property sale as I am paying two lots of council tax even though the second one is empty.
Is it just a case of saying I am living at the second property (as I am paying the council tax).

I know this may sound a little dishonest but I wished to use the proceeds to buy a rental property in a slightly better area but if I were to get hit by the 40% CGT the value has risen quite a bit and would be unable to buy back into the market.

So if possible would appreciate any advce because if not able to avoid then would rent the second property instead.
Thanks

wisbech_lad

Well, you could just say that, but HRMC are very likely to query a sale of a property after you move in for such a short time...

There is no such thing as a little dishonest, it is illegal and if you get caught, you are in deep doo doo.

Anyway, can't you offset the renovations, buying/ selling costs against the 15,000? I think that if you looked at the numbers honestly, you would find that the profit made, and tax due, are much lower. This of course may not be a good thing for you! (i.e. that the 15,000 profit, after costs, is more like 7000)

clutton_2

the first £9200 profit plus your purchase, refurb and sales costs are offsettable so you may not pay tax much

pcwilkins

The fact that you made a mistake and bought a house in the wrong area doesn't make you exempt from paying certain taxes. That's the kind of thing you should check before you buy. Why were you paying council tax for both houses anyway?

Peter

nick22abdn

I believe if you have only owned the property for a short while and have carried out work which has increased the value you are not actually liable for CGT. It should be fairly easy to prove the improvements carried out and as such there is no capital gain. You will instead be liable for income tax which will assist you if you are in the 20% bracket but not so much if you are higher rate.

As for council tax, you get 6 months exepmtion if the property is unihabitable due to work being carried out and 50% reduction if the property is unfurnished and not inhabitied for up to six months. I believe these are the council tax rules for Aberdeen but they may differ from council to council so check with your local one.

kennyboy66_2

This is one of those where it could fall under the description "trading" & you be liable to income tax (probably the worst option for you) or it could fall under the CGT rules (the best option for you, assuming you have no other gains this tax year). If CGT, as Clutton says there is not going to be a huge amount of tax payable.

See http://www.hmrc.gov.uk/manuals/bimmanual/BIM20200.htm for guidance on what tests are applied to see if you could be classed as trading.

The following could support your view that the activity is not trading.

a) this is the first time you have bought and sold a 2nd property in a short time
b) the renovations were not extensive
c) You are not, say a builder.
d) Your intention was originally to rent the property out.

Remember, however if you buy your next house and renovate & sell in a similar time frame, it could be implied that both properties gain could be liable to income tax.

hedgehogpenguin

pay your taxes and contribute towards society!!

phlash

Or, pay your taxes, and stop trying to cheat the system so you can cheat others by outbidding them to a home.

Such a selfish society.

I doubt in this case you will actually get taxed much, but your mentality and attitude towards it stinks. Boo hoo to you that if you sold you wouldn't be able to buy a 2nd property, how hard done by.

jingle_jangle

Thanks for the reply everyone.Phlash the intention was and is never to cheat the system.

At first the intention was to let the property out but thought maybe with the slight increase in price i could have then bought in a slightly better area in order to protect the rental investment.

Phlash you seem to take exception with the highlight of the 2nd property and your comments.The house I own is a modest terraced house so maybe that will will chear you up.As regards my attitude stinks how do you work that out.

Thanks everyone and also are any losses on any other investments offsettable against any profits made?

diesel9181

good luck in avoiding the CGT, i would maybe try speaking to a solicitor or accountant. as for "contributing towards society" im sure you pay enough on taxes, why get screwed even more to support the breeding machines who cant be bothered working!

manhattan

pay the taxes! full stop!