Tax-efficient way to buy first flat

szyblaszczyk

Thank you everybody for all your help. We are educating ourselves since we started attending to auctions and there are always missing things in our knowledge we can improve. It's time to move on - that's seems like a great bargain for us, legal packs are well-checked and we have almost all the money in cash (just need to borrow small amount from family) so we are not risking much and can get a lot in return mainly in terms of starting not procrastinating.

Gwendo40

You say legal packs are ''well checked''... I'm guessing (hoping) you mean you've paid a solicitor to do that?

AlexMac

As you're only planning a £35k purchase I'd guess you're not immediately going to be launching a property development empire? That is, you're starting small to see if this works for you?

If so, an alternative to doing proper legal and accountancy research, setting up a business, possibly starting a Company (with the requirement to submit annual return and file accounts with Companies House; which, while it's an easy DIY task, will mean a fine of £150 if you miss an accounts online filing deadline by even one day- he says, speaking from embarassing experience!)...

... would be simply to buy the property as in effect, an owner - occupier in either or both your names (again assuming that at least one of you doesn't already own a home). Then tell HMRC it's your primary residence, refurbish it, live in it and sell on, at a profit, in six months, having also saved a few months rent? All perfectly legal and tax free!

What could be simpler; that way you know if you're cut out for this development game, or if the two of you can work together?

What can go wrong? Well,

- you might be workshy, and end up paying professionals to do simple labouring, carpentry and decorating (you'll need registered trades to do the certifiable stuff like electrics and gas) and spend so much on it that you bomb on the resale (noting that in some areas, prices are flat or falling) .

- Or you might fall out without agreement on how to share input, effort, financial contribution and profit, if any... £35k isn't a lot to risk if you can afford it but small budgets can mean small profits; look at the "ceiling price" for the street and buy the cheapest property in the best area

szyblaszczyk

Thanks AlexMac, exactly in point. :-) We were preparing to purchase first flat for months, more than a year for now and finally we found on auction nice flat in heart of the city center which doesn't need a lot of improvement/refurb. Building is old but very beautiful with huge bank on ground floor. There is absolutely no need to any electrical/water refurbs. Painting, refreshing floors (there is a very nice wooden floor in the living room) and home staging will be absolutely enough to get a much better price. Can we earn a lot of this investment opportunity? Probably not enough for many but we will finally START and that's the most important thing for us.

That would be absolutely great to legally avoid capital gains tax but the thing is we are not going to live there... It's a flat about 40 miles from us.

AlexMac wrote: »

As you're only planning a £35k purchase I'd guess you're not immediately going to be launching a property development empire? That is, you're starting small to see if this works for you?

If so, an alternative to doing proper legal and accountancy research, setting up a business, possibly starting a Company (with the requirement to submit annual return and file accounts with Companies House; which, while it's an easy DIY task, will mean a fine of £150 if you miss an accounts online filing deadline by even one day- he says, speaking from embarassing experience!)...

... would be simply to buy the property as in effect, an owner - occupier in either or both your names (again assuming that at least one of you doesn't already own a home). Then tell HMRC it's your primary residence, refurbish it, live in it and sell on, at a profit, in six months, having also saved a few months rent? All perfectly legal and tax free!

What could be simpler; that way you know if you're cut out for this development game, or if the two of you can work together?

What can go wrong? Well,

- you might be workshy, and end up paying professionals to do simple labouring, carpentry and decorating (you'll need registered trades to do the certifiable stuff like electrics and gas) and spend so much on it that you bomb on the resale (noting that in some areas, prices are flat or falling) .

- Or you might fall out without agreement on how to share input, effort, financial contribution and profit, if any... £35k isn't a lot to risk if you can afford it but small budgets can mean small profits; look at the "ceiling price" for the street and buy the cheapest property in the best area

00ec25

szyblaszczyk wrote: »

Thanks AlexMac, exactly in point. :-) We were preparing to purchase first flat for months, more than a year for now and finally we found on auction nice flat in heart of the city center which doesn't need a lot of improvement/refurb. Building is old but very beautiful with huge bank on ground floor.

so that explains why it is at auction then since it is a flat above a retail use and many lenders do not provide mortgages in such circumstances

szyblaszczyk wrote: »

That would be absolutely great to legally avoid capital gains tax but the thing is we are not going to live there... It's a flat about 40 miles from us.

then the choice you have to make is which tax do you wish to attempt to evade?

you won't be living there so cannot claim CGT exemption

unless you let it out, or leave it vacant for a reasonable period, you will be liable to income tax, not CGT

szyblaszczyk

Yes, it will make it harder for buyers to get a mortgage for this flat. However, it all depends on individual circumstances. First thing it's a bank and second thing we have completely seperate entrance and corridor in this building. From what I read, it could be much worse if we have takeway or noisy pub on ground floor.

My question about taxes was more if we should buy it separately, together or through company. We know that capital gains tax is something we just can't avoid.

00ec25 wrote: »

so that explains why it is at auction then since it is a flat above a retail use and many lenders do not provide mortgages in such circumstances

then the choice you have to make is which tax do you wish to attempt to evade?

you won't be living there so cannot claim CGT exemption

unless you let it out, or leave it vacant for a reasonable period, you will be liable to income tax, not CGT

00ec25

szyblaszczyk wrote: »

My question about taxes was more if we should buy it separately, together or through company. We know that capital gains tax is something we just can't avoid.

no, you are not reading the answer
if you refurbish and sell you are liable for income tax not CGT

only if you let or use as a second home for a "reasonable" period will you be able to pay CGT, not income tax

szyblaszczyk

Yeah, my mistake, I was thinking about income tax.

00ec25 wrote: »

no, you are not reading the answer
if you refurbish and sell you are liable for income tax not CGT

only if you let or use as a second home for a "reasonable" period will you be able to pay CGT, not income tax

davidmcn

szyblaszczyk wrote: »

First thing it's a bank and second thing we have completely seperate entrance and corridor in this building. From what I read, it could be much worse if we have takeway or noisy pub on ground floor.

Banks are closing branches. You (or a buyer) will be able to do very little to prevent it turning into a takeaway or pub.

szyblaszczyk

Good point but it's not going to happen in next few months almost for 100%. And that's enough for us.