Capital Gains Tax and Climbing The Property Ladder

spidystrider

I am looking for a bit of advice on behalf of my son. He has just started looking for his first property. His plan is to buy a run down place, do it up over 2-3 years and sell on for a profit. He then wants to repeat this over and over again till he has his dream home. He is hoping for an average profit of 25 - 30K, each time.

He works full time, so has no plans of this ever being a business venture, but how will the taxman look upon this. Where does the taxman draw a line between someone working hard to climb the property ladder and a property developer? Could he end up having to pay capital gains tax somewhere along the line?

Victor_the_Gink

Surely if it was that easy everyone would be doing it?!

If it is his residence, then he will get PPR relief so no CGT. However, if HMRC deems this as a trade, then he will have to pay income tax on the profit, which is far worse.

AdrianC

If he's buying with the intent of improving then reselling for profit, he'll be paying income tax, because the profit is part of his trading activity.

If he's buying to let, and the capital gain is a side benefit when he eventually sells, then he'll be paying CGT.

konark

It's a great plan but in a flat market you simply can' t buy a house, tart it up a bit and walk away with £25k profit, if you could who would bother to work?

Crashy_Time

He may have to buy a time machine first?

AdrianC

konark wrote: »

It's a great plan but in a flat market you simply can' t buy a house, tart it up a bit and walk away with £25k profit, if you could who would bother to work?

Did Sarah Beeney lie to us...?

Mojisola

spidystrider wrote: »

His plan is to buy a run down place, do it up over 2-3 years and sell on for a profit. He then wants to repeat this over and over again till he has his dream home. He is hoping for an average profit of 25 - 30K, each time.

He works full time, so has no plans of this ever being a business venture

In what way is this plan not a business venture?

Crashy_Time

https://www.property118.com/section-24-forced/92078/

spidystrider

Thanks for all the answers, especially the detailed one from eggha, I really appreciate the time taken. He definitely won't be pushing his luck and will be living in each property. Obviously he doesn't have a time machine and it may not work out as he plans, but I do admire his work ethic and ambition.

spidystrider

Crashy_Time wrote: »

https://www.property118.com/section-24-forced/92078/

Interesting read, but it seems to be about landlords, unless I missed something. He has no plans to be a landlord.

Thrugelmir

spidystrider wrote: »

He is hoping for an average profit of 25 - 30K, each time.

Hoping isn't a business plan. Selling and buying property is going to involve considerable cost. Selling fees, legal fees, stamp duty. To net £25k profit a transaction is a sizable challenge. Not least that there are plenty of property developers actively looking for similar properties. Having to finance with a mortgage may restrict the options available.