CGT or Income?

ikorodu

As I understand it, if one buys a house to renovate and sell, then any profits would be seen as income for tax purposes, not CGT.

Can anyone tell me what would count as 'taxable profit' in this case?

I assume that you can remove the costs of refurbishment?

[Deleted User]

This is a frequently discussed area - much too involved to fully explore on here.

If you buy a house, tidy it up a bit and then decide that ' it is not really for me' without actually moving in - you may get away classing it as CGT. Do it more than once and it suggests trading in property development - 'frequency of transactions' in the 'badges of trade' - see attached.

http://www.hmrc.gov.uk/manuals/bimmanual/bim20205.htm

A big drawback in your ability to class it as CGT is the terminology that you have already used in your short message.

if one buys a house to renovate and sell

This indicates that you have absolutely no intention of holding it as an investment. That would sway significantly, although not automatically, towards trading.

http://www.hmrc.gov.uk/manuals/bimmanual/BIM20210.htm

ikorodu

I am assuming that it would be classed as a trade.

My question is if it is classed as a trade, what would be taxable profit? I think that if you are liable for CGT then things like a new kitchen or bathroom are not allowable costs, does this still apply if this is a trade?

[Deleted User]

In my view it is a lot easier claim for costs as a trade. You are correct in noting the difference in what you can claim and not claim.

The items that you mention can be claimed against trading profits as a property developer. This would not necessarily be the case where you to, for example,run your business from the property in question.

http://www.accountingweb.co.uk/anyanswers/property-development-or-property-investment