How to set off earnings agaisnt previous losses on Tax return

Peterdad

Hello,

A few years ago, I embarked on a private house refurbishment project for a profit. For personal reasons, I incurred substantial losses on completing the project meaning I only recovered part of what I invested and had no profit. I entered the money, on the tax return, each year as a loss as I would not recover any money (and get a profit) until I sold the house. It took me 3 years. In tax returns:
Year 1: loss of £127,000 (all the money I invested in buying the house and refurbishment costs)
Year 2: loss of ££18,000 (refurbishment costs)
Year 3: loss of £12,500 (refurbishment and maintenance)
Year 4: received only £65,500 from the sale of the house (not profit, just what I recovered of the investment). This is what I need to enter in the tax return for the year.

Obviously, I do not want to end up paying tax on that money as if it was a capital gain. How do I relate it to the previous money I invested?
Thanks.

jimmo

You seem to be way out of your depth on this.
I won't trouble you with the potential complexities of choosing between the cash basis and the conventional (GAAP) basis because I fear the real potential issue is your personal reasons for selling at a loss.
If you sell at a loss for personal reasons there is a very real danger that the correct tax treatment is to regard you as having sold at market value.
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim33610

In that case you could easily have a substantial taxable profit.
How much do you want to share on a forum or do you think you would be better paying for professional guidance?

Peterdad

You are making the wrong assumption for reasons know to yourself. I did not sell at a loss nor did I say I did. I said I lost money on it. And I certainly did not lose my money on purpose! Your answer does not help.

Dazed_and_confused

I believe jimmo is an ex Inspector of Taxes so his observations are almost certainly something to take note of, not brush off lightly.

csgohan4

Peterdad wrote: »

You are making the wrong assumption for reasons know to yourself. I did not sell at a loss nor did I say I did. I said I lost money on it. And I certainly did not lose my money on purpose! Your answer does not help.

If you don't like the advice given from strangers on the internet who give their time for free, you can always get an accountant

somethingcorporate

Peterdad wrote: »

You are making the wrong assumption for reasons know to yourself. I did not sell at a loss nor did I say I did. I said I lost money on it. And I certainly did not lose my money on purpose! Your answer does not help.

That's not what your OP says.



It looks like you spent £127k + £18k + £12.5k on the property = £157.5k and sold it for £65.5k. Looks like a huge loss to me!


Can you explain your numbers more clearly if this is not what you mean.

00ec25

Peterdad wrote: »

You are making the wrong assumption for reasons know to yourself. I did not sell at a loss nor did I say I did. I said I lost money on it. And I certainly did not lose my money on purpose! Your answer does not help.

as above. Jimmo is someone you listen to and respect. He is ex HMRC and if he chooses to reply to a thread (many don't interest him and he leaves them to lesser mortals to comment on) you pay attention to what he says, because it is unlikely you will find fault with it.

your OP states purchase price and initial refurb expenditure 127k
you then state sale proceeds, not profit, 65k
that is a loss

csgohan4

TBh sounds to me like a failed project and not thought through, you must have bought an overpriced house and got ripped off for renovations and now your asking the taxpayer to swallow your loses.

Murdina

This has the potential to be an extremely complicated matter; if as has been suggested you sold it for less than market value to a connected person that opens up a particular can of worms but even if you did not there are 3 different ways the transaction could potentially be dealt with for tax - as a venture in the nature of trade (which seems to be what you want), as a capital gain or (unlikely when you made a loss) special legislation taxing (in effect) capital gains on property as if they were income.
This is really not something to address through a forum as a layman or lay woman. Much as it may pain you when you have lost so much money already, you would be best advised to find an accountant or tax adviser, lay out all the facts openly to them and ask them to do your tax return + amend any earlier years as needed.
One off property transactions in my humble experience of many years of working in tax frequently attract close attention from HMRC so paying someone to sort all this out is likely to be money well spent.

[Deleted User]

Even if it was a ‘venture in the nature of trade’ as you put it would it not be too late to make any loss claims?

tebthereb

I am guessing the OP’s reference to personal reasons and his loss means he doesn’t want to talk about why the project was not profitable, not that he sold at less than costs out of personal choice.

I don’t really understand the reference to putting the losses each year on his tax return. However, I assume from this and his comment that it was acquired for profit that he has been reporting it as a trade i.e. self employment.

In which case the eventual funds received would be absorbed by accumulated losses.

I agree have a chat with a reputable local accountant to make sure this is done right. Most don’t charge for an initial meeting.