Second home stamp duty levy

Ramouth

We are considering buying a house at auction to do up and resell. We are not married and jointly own our current house wich we finished paying off last year, The question I have is can I avoid paying the second home stamp duty levy by transferring ownership of our current home into my partners name only and buying the second property in my name only?

The advice I have found online so far all refers to married / civil partnered couples so if anyone on here knows the answer it would be great

Many thanks

Ramouth

AnotherJoe

Yes, you can. If you and your partner then split up as a result of the stresses of a major DIY project (or any other reason obviously ) you'd be up a creek with no paddles.
Possibly you could protect yourself by loaning them the money to buy it, protected by a charge on the property. Arrange it via a solicitor.
I take it you are aware you will have to pay CGT on the profit resulting from the gain ?

AdrianC

AnotherJoe wrote: »

I take it you are aware you will have to pay CGT on the profit resulting from the gain ?

If it's being bought with the specific intention of being refurbished for sale, then it's entirely likely HMRC will think income tax is due on the profit.

Ramouth

Thanks for the reply Another Joe. My partner and I have been together for a long time (14 years) and have been through a lot so we trust each other not to run away with a house. I’m sure many couples say things like this before things go wrong though. Having an agreement in wrighting could offer some protection but this might be considered as still “having an interest” from a stamp duty point of view.

I am aware that the profit would be liable for capital gains tax which i feel is fair as it is charged on the profit not the whole value of the property - I am just unhappy about the extra stamp duty.

Ramouth

If it's being bought with the specific intention of being refurbished for sale, then it's entirely likely HMRC will think income tax is due on the profit.

The capital gains tax calculator asks for details of other income so I think the HMRC would be seeing this as a capital gain. Perhaps if we set up a company to do the project and took the profit as a salary of some sort it would be income tax?

gingercordial

Ramouth wrote: »

The capital gains tax calculator asks for details of other income so I think the HMRC would be seeing this as a capital gain. Perhaps if we set up a company to do the project and took the profit as a salary of some sort it would be income tax?

No. Capital gains are something that happen because your asset goes up in value during your holding period when you intend to hold it long term eg for rental and investment growth.

If you purchase an asset with the intention from the start of selling it on for a profit in the short term, that is trading and subject to income tax. This can be the case even if you only do it once.

Intention at the time you buy is key. The wording of any online capital gains calculator is not tax law. If the time between buying and selling is short you may find yourself having to prove your intentions to HMRC.

Ramouth

Thanks ginger cordial. I can see we need to look more closely at the tax implications. Perhaps it would be best to go through it all with an accountant.

There seems to be many ways in which the government take a cut, stamp duty, extra stamp duty, VAT, capital gains tax, income tax etc. We would defiantly need to get a good price to make it viable.

00ec25

Ramouth wrote: »

I am aware that the profit would be liable for capital gains tax which i feel is fair as it is charged on the profit not the whole value of the property - I am just unhappy about the extra stamp duty.

your awareness is incorrect

as explained, where you buy with the intent of refurbishing and selling you are deemed to be property developing, not property investing

development is a trade. Trading is subject to income tax not investment/capital gains tax, even if it is the only one you ever do


EDIT I note your later comment - yes you need to see an accountant to get your taxes correct
(the calculator refers to "£income" because that is how the tax band applicable for CGt is worked out, by reference to your "total income" and that has its own specific definition. Calculators should only be sued where you understand the context of what you are calculating, and that requires you know basic rules, which you clearly are not aware of)

AnotherJoe

Ramouth wrote: »

Thanks ginger cordial. I can see we need to look more closely at the tax implications. Perhaps it would be best to go through it all with an accountant.

There seems to be many ways in which the government take a cut, stamp duty, extra stamp duty, VAT, capital gains tax, income tax etc. We would definitely need to get a good price to make it viable.

And also understand why you'd make a better / more cost effective job of it than a professional who can buy stuff at trade, get mates rates, subsume expenses into business and so on.



Whenever you see an episode of Homes Under The Hammer, if you work back backwards from time spent to to the profit minus tax, you'll often find that they would have earned a similar amount per hour by flipping burgers. Or worse.

Ramouth

That is kind of why we are trying to get an idea of the various taxes, fees etc. So that we can work out the total costs. I am an architectural technician and my partner is a quantity surveyor so we are can get a reasonable idea of what work is required and what it will cost. From this we were going to work backwards to a maximum price we would be willing to pay to acheive a profit that makes the work worthwhile. What has become very clear here with all of your help is that we don’t have a clue about tax!

wine_night

It’s probably worth investing in a good property tax book- Carl Bayley has a few useful publications.