stamp duty on flat buying for renovation

mike8888

Hello,

I have the following query.

I intend to buy a flat in poor condition, hire a builder to improve it and then resell it. Since I own the flat in which I live, this will count as the purchase of a second flat, and so I will have to pay the new stamp duty rate after 1st April. However, when I sell the flat, will I recover the money? Will my capital gains tax bill be correspondingly reduced?

Thanks for any information about this.

Cheers,

Mike.

AdrianC

No - the 18mo-and-reclaim is where the additional property is replacing your primary personal residence, which is then sold.

You are buying and selling a flat in the line of a business activity - and should be paying income tax on the profits, not CGT.

booksurr

agreed, your intent is to undertake property development. Even if you only do this one flat in your entire life it will be treated as trading activity not investing activity so you will be subject to income tax not CGT

that said as a cost of trading the SDLT you pay on purchase will be an eligible expense when calculating your profit that will be subject to income tax
time to do further reading....
http://www.hmrc.gov.uk/manuals/sdltmanual/sdltm09560.htm

http://www.hmrc.gov.uk/manuals/bimmanual/BIM20000.htm

http://www.hmrc.gov.uk/manuals/bimmanual/BIM20200.htm

as a further summary see how you tick 3 of the following without even needing to know more about you...
"Indicators of trading status
Factors which may point to a trading activity include:
• short period of ownership
• enhancement expenditure
• pattern of frequent transactions
• property not let
• wording in business plan / loan proposal
• excessive use of borrowings to finance purchase of property as stock in trade"
http://www.midsnell.co.uk/wp-content/uploads/2014/08/Midgley-Snelling-Tax-Guide-For-Property-Investors.pdf

mike8888

Thanks for the replies. Just one further query; is it possible to legally avoid or reduce the stamp duty by transforming myself into a company? Surely companies in this business don't pay stamp duty on the properties they buy?

theartfullodger

You don't "transform yourself into a company" you set up a company, put LOADS of money into it so it can buy/renovate - or get a mortgage in company's name (but with no history or track record good luck with that..). And then have the fun of trying to get any money or profits out again.

But what's not to like about paying tax fairly due eh?

AdrianC

And, yes, in some cases corporate bodies not only pay the same SDLT as individuals, but considerably more :-
https://www.gov.uk/guidance/stamp-duty-land-tax-corporate-bodies
...although that doesn't apply to either lettings companies or to developers.

Relief from SDLT is available to businesses in certain circumstances :-
https://www.gov.uk/guidance/stamp-duty-land-tax-relief-for-land-or-property-transactions
...but not that would apply here.

So it's just the same SDLT as if it was a personal purchase.

ognum

mike8888 wrote: »

Hello,

I have the following query.

I intend to buy a flat in poor condition, hire a builder to improve it and then resell it. Since I own the flat in which I live, this will count as the purchase of a second flat, and so I will have to pay the new stamp duty rate after 1st April. However, when I sell the flat, will I recover the money? Will my capital gains tax bill be correspondingly reduced?

Thanks for any information about this.

Cheers,

Mike.

I think you asked exactly this question when you had just purchased a flat to renovate in 2014.

What did you do then?

csgohan4

mike8888 wrote: »

Thanks for the replies. Just one further query; is it possible to legally avoid or reduce the stamp duty by transforming myself into a company? Surely companies in this business don't pay stamp duty on the properties they buy?

Pay your tax like the rest of us. Why are you so special?

Bluebirdman_of_Alcathays

csgohan4 wrote: »

Pay your tax like the rest of us. Why are you so special?

Yawn. He is perfectly entitled to minimise his liability.

AnotherJoe

csgohan4 wrote: »

Pay your tax like the rest of us. Why are you so special?

He's asking a perfectly valid question about the best way to organise to minimise tax. Not trying to evade it. No different to asking how much money someone should put in his pension to avoid higher rate tax for example. What's your beef?