First-Time buying to renovate and sell & tax

AdrianC

jayjay2k wrote: »

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.

You will be developing the property for profit - you are a property developer. Doesn't matter if you only do it once or have a dozen on the go at once...

Based on the fact that I am a first-time buyer and want to buy my first home

But that's not what you're doing here. This will not be your home. This is a business activity to add value to something - which happens to be a residential property.

my questions are:
1. Do I have to pay Capital Gains Tax or Income Tax?

It seems to fall firmly under HMRC's badges of trade, so it's a trading activity, therefore income tax.
http://www.accaglobal.com/uk/en/technical-activities/technical-resources-search/2011/august/badges-of-trade.html

BTW, on the mortgage... Have you just had a DiP, or are they happy to lend against such a short-lease property on the basis that you will be extending the lease?

jayjay2k

AdrianC wrote: »

You will be developing the property for profit - you are a property developer. Doesn't matter if you only do it once or have a dozen on the go at once...

But that's not what you're doing here. This will not be your home. This is a business activity to add value to something - which happens to be a residential property.

It seems to fall firmly under HMRC's badges of trade, so it's a trading activity, therefore income tax.


BTW, on the mortgage... Have you just had a DiP, or are they happy to lend against such a short-lease property on the basis that you will be extending the lease?

Thank you for your reply.

I haven't got the DiP yet but the broker I am using has asked a few lenders and they are happy with the short-lease of 64 years. I did tell my broker that I will be extending the lease but I don't think the lender made their decision to lend based on me wanting to extend.

It has certainly limited my options but there are a few lenders that are happy to lend.

Some lenders like Nationwide are happy with the short-lease as long as it is not below 55 years. I cannot post links since I am new but if you search for "nationwide-intermediary tenure lending criteria" on Google, you can see the requirements there

csgohan4

Do you like HOmes under the hammer?

jayjay2k

csgohan4 wrote: »

Do you like HOmes under the hammer?

I do indeed. Do you?

need_an_answer

How long do you expect the renovation to take?
You need to bear in mind you may be purchasing leasehold so your renovations may need agreement before being carried out,which costs time and money which need to be factored into the total budget.

On the subject of the lease extension,what time frame are you hoping for there?

if you are flipping the property quickly then you need to me mindful of early redemption fees for any mortgage and the possibility that potential buyers could be cautious when seeing a short timeframe for your ownership.

Before you purchase check carefully the costs imposed by the leaseholder/management company for selling they really do vary substantially and can on occasion add thousands to you outgoings.

Having renovated in the past I wouldn't go back to it now as in honesty the margins are very tight now and it is difficult to bring in a return when you factor in all the costs, not just the cost of the renovation but the buying and ultimately the selling costs too.

Difficult enough when you deal with a freehold property,doubly difficult when that property is leasehold!

AdrianC

csgohan4 wrote: »

Do you believe HOmes under the hammer?

I've corrected that for you.

csgohan4

AdrianC wrote: »

I've corrected that for you.

:rotfl: Thanks I should have put that first

jayjay2k

AdrianC wrote: »

I've corrected that for you.

I don't believe in anything until I see proof. Do you believe in HOmes under the hammer?

jayjay2k

need_an_answer wrote: »

How long do you expect the renovation to take?
You need to bear in mind you may be purchasing leasehold so your renovations may need agreement before being carried out,which costs time and money which need to be factored into the total budget.

On the subject of the lease extension,what time frame are you hoping for there?

if you are flipping the property quickly then you need to me mindful of early redemption fees for any mortgage and the possibility that potential buyers could be cautious when seeing a short timeframe for your ownership.

Before you purchase check carefully the costs imposed by the leaseholder/management company for selling they really do vary substantially and can on occasion add thousands to you outgoings.

Having renovated in the past I wouldn't go back to it now as in honesty the margins are very tight now and it is difficult to bring in a return when you factor in all the costs, not just the cost of the renovation but the buying and ultimately the selling costs too.

Difficult enough when you deal with a freehold property,doubly difficult when that property is leasehold!

Thank you for your valuable input.

I will probably look to renovate and extend the lease in 4 to 6 months since I am not in a hurry. I'd be find if it takes me a year too

Really appreciate your input on this, thank you.

jayjay2k

It is also great to have clowns on this forum. Makes it more fun