First-Time buying to renovate and sell & tax

jayjay2k

Hi,

I am a first-time buyer and want to buy my first home, which is a 2 bedroom flat in London to renovate, extend the lease and sell. I will not be living in it nor be renting it out. I am also not a property developer. It will just be a one off thing.

The flat's lease will expire in 64 years time and I will be looking to extend this for 99 more years, which would cost me about £55,000.

Based on the fact that I am a first-time buyer and want to buy my first home, my questions are:
1. Do I have to pay Capital Gains Tax or Income Tax?
2. If I have to pay Capital Gains Tax, can I deduct the the following from the profit before applying tax:

1. Lease extension price of £55,000 from the gains I have made when I sell the flat
2. Solicitor's fee(buying, extending lease and selling)
3. Surveyor's fee
4. Estate agent's fee
5. Early repayment mortgage fee of £6,000
6. Renovation cost of about £30,000

Thanks

davidmcn

Are you sure you can get a mortgage for this sort of project, as it doesn't sound like you'd qualify for a standard owner-occupier product or a BTL one?

And even if you can, why would you opt for one which has a £6k early redemption charge?

Pixie5740

The tax situation has nothing to do with your status as a FTB. If you are flipping the property you should pay income tax on your profits.

Pixie5740

To finance this project you really need commercial lending unless you are prepared to commit mortgage fraud.

jayjay2k

I can definitely get a mortgage because originally I was going to buy it to live in it but I have realised that I can make a good profit on it if I renovate it, extend the lease and sell it.

Regarding the early redemption charge, I applied for a standard owner-occupier mortgage and now decided that selling it would be better. This is so that I can use the profit to buy somewhere even better to live in.

jayjay2k

@Pixie5740 - the money for renovation and lease extension would come from my own saving. Does it still count as mortgage fraud?

Gabbs_the_Newt

jayjay2k wrote: »

@Pixie5740 - the money for renovation and lease extension would come from my own saving. Does it still count as mortgage fraud?

Of course - one of the questions on the mortgage application will be - do you intend to live there. Presumably you will be answering yes?


Development is much riskier, so the bank will want to charge more. You are obtaining money (a cheaper rate) by deception, so definitely fraud.


They will almost certainly not find out, but you should be aware of what this is.

bigisi

jayjay2k wrote: »

@Pixie5740 - the money for renovation and lease extension would come from my own saving. Does it still count as mortgage fraud?

Yes because;

jayjay2k wrote: »

I applied for a standard owner-occupier mortgage

and not actually being an owner occupier is fraud.

jayjay2k

I really am not the type to cheat or commit fraud so I will speak to the bank to put things right due to this change of decision. It is good to know that this might be seen as fraud and I am glad I asked.

Candyapple

Are you sure you will make enough profit from the resale to cover your initial outlay given all the doom and gloom talk about the London property market crashing?

What happens if you renovate it and put it back on the market and it sits there for months, do you have the funds to cover the mortgage payments in the meantime as well as payment for wherever your main home will be?

jayjay2k

Candyapple wrote: »

Are you sure you will make enough profit from the resale to cover your initial outlay given all the doom and gloom talk about the London property market crashing?

What happens if you renovate it and put it back on the market and it sits there for months, do you have the funds to cover the mortgage payments in the meantime as well as payment for wherever your main home will be?

I do have enough funds to survive and pay for the outgoings while the property is on the market but if it doesn't sell after, let's say 3 to 4 months, then I will just move in and live in it. This has also crossed my mind that the property market is not looking too good and prices are dropping.

I currently live with a friend and pay an affordable amount of rent so this is not too much of an issue.