Investing in property using equity from existing property

Retired_Mortgage_Adviser

Apologies, I've now corrected my post. Thanks for pointing that out.

Lover_of_Lycra wrote: »

Buying property to do up and sell on attracts income tax not CGT.

Ry12335

Retired_Mortgage_Adviser wrote: »

OP, you have the seedlings of a plan and being in the trades yourself is a big big plus.

As you have suggested, in your place I would try out a buy BMV-refurbish-sell first. [STRIKE]With the house-prices you are looking at, any CGT liability is unlikely.[/STRIKE] The "profit" could be subject to income tax.

My only suggestion with regard to releasing equity from your current property is to at least consult with a whole of market broker to see what your options are.

Good luck and do update the thread when you get started!

Thanks for the info. Which situation would qualify for CGT and vice versa for income tax.

Thanks

Retired_Mortgage_Adviser

As with all things tax, there isn't a black and white answer to your question. This article here covers the criteria that may help in answering that question. https://addictedtoproperty.co.uk/property-flipping/

To give an example, if you decide to buy a run-down property for £50,000, make a few repairs and some renovations for £10,000 and then sell the property for £80,000, you have made a profit of £20,000.

The taxable amount will depend on whether you’re engaged in a trade or not. If you are indeed engaged in a trade, you will have to pay income tax plus national insurance (ie taxed as a sole trader). Any renewal, repair, improvement, or renovation will count as acceptable expenditures when calculating your profit.

But if you’re not engaged in a trade, you’ll be subject to capital gains tax. You won’t be able to deduct things like renovation costs and repairs that are not qualified as capital costs and so the amount taxable might be as high as £30,000 instead of £20,000.

As the article explains, to determine whether you are "engaged in a trade" is not always easy.

PS: The above is assuming you buy and sell as an individual. Professional property-flippers often do these under the umbrella of a ltd. co. which comes under a wholly different tax regime.

Ry12335 wrote: »

Thanks for the info. Which situation would qualify for CGT and vice versa for income tax.

Thanks

Ry12335

Thanks for all the information

Ry12335

Retired_Mortgage_Adviser wrote: »

As with all things tax, there isn't a black and white answer to your question. This article here covers the criteria that may help in answering that question.

To give an example, if you decide to buy a run-down property for £50,000, make a few repairs and some renovations for £10,000 and then sell the property for £80,000, you have made a profit of £20,000.

The taxable amount will depend on whether you’re engaged in a trade or not. If you are indeed engaged in a trade, you will have to pay income tax plus national insurance (ie taxed as a sole trader). Any renewal, repair, improvement, or renovation will count as acceptable expenditures when calculating your profit.

But if you’re not engaged in a trade, you’ll be subject to capital gains tax. You won’t be able to deduct things like renovation costs and repairs that are not qualified as capital costs and so the amount taxable might be as high as £30,000 instead of £20,000.

As the article explains, to determine whether you are "engaged in a trade" is not always easy.

PS: The above is assuming you buy and sell as an individual. Professional property-flippers often do these under the umbrella of a ltd. co. which comes under a wholly different tax regime.

Thanks

So am I right in saying under the income tax bracket I will be able to claim back all costs involved with the renovation but under the capital gains bracket I will only be able to claim on certain cost involved in the renovation? Il have a read of that link you sent.
Thanks

Retired_Mortgage_Adviser

Roughly speaking, that's about right.

If the sale were subject to CGT, then only capital expenses will go towards reducing the taxable amount. Crudely put, an "improvement" is a capital expense while a repair or replacement is not.

A simple example is - replacing a laminate kitchen worktop with a granite worktop would be an improvement and hence could be a capital expense but tearing out old and installing new carpeting would not.

Again, what does and doesn't count as an "improvement" is not always straightforward to determine and will vary depending on the specifics.

Ry12335 wrote: »

Thanks

So am I right in saying under the income tax bracket I will be able to claim back all costs involved with the renovation but under the capital gains bracket I will only be able to claim on certain cost involved in the renovation? Il have a read of that link you sent.
Thanks

username901

Imo you've missed the train with regards to property, especially with such a small amount, needing to borrow and no savings(!)

Life will be a lot less stressful, probably no less riskier and certainly more rewarding in the long term investing in stocks and shares. With Brexit due to happen at some point in our lives, US and China trade war.appearing to enter some sort of truce in a couple of weeks, there's potential for better returns in an S&S ISA. Clear your debt and make use of the £20k allowance you both get each tax year

Ry12335

Quick update

Savings are on track for the revised amount of £10000

We have hit the £1000 mark