tax for Buying a property to renovate and sell

daxu

Hi,

Say I bought a house in October 2013, redecorated and sold it in June 2014.

I did told some utility company and council that I was living there as I need to pay council taxes and some water bills.

Say I bought it for 100k and sold it for 105k after all the fees.

For this transaction, what kind of tax should I pay? Is it capital gain or income tax or nothing at all (as I was living there for that half year)?

Many Thanks

daxu

Be honest, I lived there only when I did the decoration too late.

I did tell the utility companies that I were moving to that place though.

G_M

So clearly it was not your primary residence.

If this is a one off, you'd be liable for Capital Gains Tax on the increase in value. If it has gone from £100K to £105K that's a £5K gain.However if you sold it for £110K and paid £5K in legal and estate agents fees, that's a £10K gain.

In either case though, there'd be no tax since you have an annual CGT allowance of £11,100

If you do this regularly though, as a business, then Income Tax kicks in.

booksurr

G_M wrote: »

If you do this regularly though, as a business, then Income Tax kicks in.

not as simple as that

the HMRC question is one of intent at the outset, not one of frequency

given the "rapid" turnaround between purchase and sale of "only" 8 months HMRC may well flag the sale as unusual and raise further questions such as where was OP living during the time he owned the now sold property and, crucially, why did he buy it in the first place.

if OP wishes to lie to HMRC and claim he bought with the intention of either making it his home (clearly that was not the case in practice) or as an investment (which has now been cashed in "rather" early) then so be it, he may get away with CGT liability only. However, HMRC may equally regard it as as one off property development trade and so tax him under income tax

this is a reasonably simple summary of the issues at hand...
http://www.thompsonspropertytax.co.uk/is-property-development-a-trade-or-a-capital-gain

from the tone and wording of the OP it is my bet that he knows full well his intention was to undertake property development from the outset and it was bought to do up and sell on asap, in which case income tax is his liability

daxu

Hi G_M
How capital gain tax work here:
For example,
I bought a house for 100k, sold for 110k. Make 5k profit after all expenses.

Now I have a cash sum of 110k (or 105 actually) and purchased another buy to let property for 120k (so I put in some my own money) and let it out.

In this case, I am not really taking the 110k out as my profit as I re-invested it. What kind of tax should I pay?

Many Thanks

kinger101

Yes, booksuur is correct. The frequency and number of transactions is not relevant to this case. Only the intention at the outset. In calculating the trading profit, you should include the expenses incurred during the property renovation. I hope you kept receipts.

kinger101

daxu wrote: »

Hi G_M
How capital gain tax work here:
For example,
I bought a house for 100k, sold for 110k. Make 5k profit after all expenses.

Now I have a cash sum of 110k (or 105 actually) and purchased another buy to let property for 120k (so I put in some my own money) and let it out.

In this case, I am not really taking the 110k out as my profit as I re-invested it. What kind of tax should I pay?

Many Thanks

I'm sorry, this doesn't change anything. You pay income tax on the £5K.

booksurr

daxu wrote: »

Hi G_M
How capital gain tax work here:
For example,
I bought a house for 100k, sold for 110k. Make 5k profit after all expenses.

Now I have a cash sum of 110k (or 105 actually) and purchased another buy to let property for 120k (so I put in some my own money) and let it out.

In this case, I am not really taking the 110k out as my profit as I re-invested it. What kind of tax should I pay?

Many Thanks

it is much more likely you are liable to income tax on your £5k profit from property development. So you would pay at least £1,000 in tax if you are a basic rate taxpayer (or £2,000 if your income is into the 40% "higher rate" tax bracket)

you are not subject to CGT, you are subject to income tax especially as it is now apparent that you intend to "roll over" the £110k into another property