Residential Investment Property Dilemma

Anon4tax

he’s not a tax lawyer sort he’s an accountant

yksi

Hmm hold on, a few things missing here. The main one is oh my god get a solicitor and sort this out on paper. I am also gobsmacked that your (idiot) business partner has done this without anything on paper. Nothing stops you walking off with all their profit and they would have to fight you even to get back their original investment since you could say it was a gift or interest free loan...

They should be paying half the mortgage cost since it is their investment too and they are expecting half the profit.
Council tax = you alone, since only you live there.
Utility costs should be shared in some proportion as they are being used for the renovation work.
Your renovation costing vs resale might not be either guaranteed not realistic, but others have already pointed that out.
"Fair" would be for you to pay half the appropriate rent, since they own half and you own half.
There should be a large deduction from your rent to reflect the condition of the home and the inconvenience of living in a building site.
The other person will need to declare the rent received and pay tax on it.
You are not receiving payment for the work that you do in managing the site and anything like painting. This would be difficult to pay you for because of the tax implications. But your friend should be very aware that they have a debt of at least gratitude to you. Deducting it from your rent would seem like a fair deal, and also reduce their tax bill, which is a bonus for them. Alternatively, figure out an hourly rate, consider it a renovation cost, and take it out before the remaining profit is shared 50/50 (might be tough to account for tax wise of course...).

I suspect once they take all of this into account they will quickly realise they can save themselves a lot of messing about by simply sticking to the original agreement.

As others have noted it really sounds like they will be on the hook for CGT and SLDT and you really need specialised professional advice about your own tax obligations. It could be very expensive for you if you don't realise the sale price or profit that you expected too.

Anon4tax

yksi said:

Hmm hold on, a few things missing here. The main one is oh my god get a solicitor and sort this out on paper. I am also gobsmacked that your (idiot) business partner has done this without anything on paper. Nothing stops you walking off with all their profit and they would have to fight you even to get back their original investment since you could say it was a gift or interest free loan...

They should be paying half the mortgage cost since it is their investment too and they are expecting half the profit.
Council tax = you alone, since only you live there.
Utility costs should be shared in some proportion as they are being used for the renovation work.
Your renovation costing vs resale might not be either guaranteed not realistic, but others have already pointed that out.
"Fair" would be for you to pay half the appropriate rent, since they own half and you own half.
There should be a large deduction from your rent to reflect the condition of the home and the inconvenience of living in a building site.
The other person will need to declare the rent received and pay tax on it.
You are not receiving payment for the work that you do in managing the site and anything like painting. This would be difficult to pay you for because of the tax implications. But your friend should be very aware that they have a debt of at least gratitude to you. Deducting it from your rent would seem like a fair deal, and also reduce their tax bill, which is a bonus for them. Alternatively, figure out an hourly rate, consider it a renovation cost, and take it out before the remaining profit is shared 50/50 (might be tough to account for tax wise of course...).

I suspect once they take all of this into account they will quickly realise they can save themselves a lot of messing about by simply sticking to the original agreement.

As others have noted it really sounds like they will be on the hook for CGT and SLDT and you really need specialised professional advice about your own tax obligations. It could be very expensive for you if you don't realise the sale price or profit that you expected too.

Really insightful. Thanks

Crashy_Time

"Flipping" houses is over, find another way to make money IMO.

oldbikebloke

yksi said:

 Alternatively, figure out an hourly rate, consider it a renovation cost, and take it out before the remaining profit is shared 50/50 (might be tough to account for tax wise of course...).

you cannot deduct own labour "cost" when working out profit for tax
PIM2210 - Property Income Manual - HMRC internal manual - GOV.UK (www.gov.uk)