Capital gains on off plan flat

K_Khan

Hi MSE Forum

Scenario:

I have invested money in an off plan flat. The block of flats has started construction and is due to finish construction in two years time. The flat I have invested in is currently valued at £200k. I have exchanged contracts with the developer at which point they asked me to pay a 10% deposit (£20k).

One year on I decide to sell my exchanged contract as I no longer want to buy the flat. The flat is now worth £210k so I sell my contract for £21k (10%). This earns me a £1k profit on disposal of this contract.

Question:

Do I have to pay capital gains tax on the £1k assuming I have used up my tax free allowance.

Many thanks

K

lincroft1710

Didn't realise you could sell an exchanged contract, let alone make a profit on it

Jeremy535897

People sell their place in the queue for hard to get cars. It will depend on how the agreement is expressed, but as there is an underlying chargeable asset, any profit will be a chargeable gain. There may also be stamp duty issues.

K_S

K_Khan said:

Hi MSE Forum

Scenario:

I have invested money in an off plan flat. The block of flats has started construction and is due to finish construction in two years time. The flat I have invested in is currently valued at £200k. I have exchanged contracts with the developer at which point they asked me to pay a 10% deposit (£20k).

One year on I decide to sell my exchanged contract as I no longer want to buy the flat. The flat is now worth £210k so I sell my contract for £21k (10%). This earns me a £1k profit on disposal of this contract.

Question:

Do I have to pay capital gains tax on the £1k assuming I have used up my tax free allowance.

Many thanks

K

@k_khan
- Whether you can sell prior to completion will depend upon the contract. Some developers will bar buyers from selling before completion, or place onerous restrictions on any sale which make it unviable.

- afaik, the 'profit' from flipping off-plan properties prior to completion is the gain in property value, so £10k in this example. I'm not an accountant but afaik the investors I've seen do this do have to account for CGT. 

Jeremy535897

That would be if the transaction had to be categorised as a sale at £210,000 and a purchase at £200,000, which is why I said it depends on how the agreement is expressed. That is more a matter for a solicitor.

lincroft1710

Jeremy535897 said:

People sell their place in the queue for hard to get cars. It will depend on how the agreement is expressed, but as there is an underlying chargeable asset, any profit will be a chargeable gain. There may also be stamp duty issues.

Wouldn't a contract to buy a house have more complex issues, e.g. mortgage availability? Would a builder have to honour a contract where the person with whom he contracted is no longer the buyer and the person who now claims to be the other party to the contract, may be someone with whom the builder does not wish to do business?
 

I know my questions aren't tax related, but I just wonder if the OP's scenario is feasible.

Jeremy535897

lincroft1710 said:

Jeremy535897 said:

People sell their place in the queue for hard to get cars. It will depend on how the agreement is expressed, but as there is an underlying chargeable asset, any profit will be a chargeable gain. There may also be stamp duty issues.

Wouldn't a contract to buy a house have more complex issues, e.g. mortgage availability? Would a builder have to honour a contract where the person with whom he contracted is no longer the buyer and the person who now claims to be the other party to the contract, may be someone with whom the builder does not wish to do business?
 

I know my questions aren't tax related, but I just wonder if the OP's scenario is feasible.

They are always feasible, with sufficient imagination. The contractor does not hold all the cards. He may keep the current deposit, but he then has to find someone else to complete if OP does not want to. Unless there is something in the contract, there is nothing to stop OP completing and then selling on (apart from stamp duty), so I am not sure how choosy the builder would be.

K_Khan

K_S said:

K_Khan said:

Hi MSE Forum

Scenario:

I have invested money in an off plan flat. The block of flats has started construction and is due to finish construction in two years time. The flat I have invested in is currently valued at £200k. I have exchanged contracts with the developer at which point they asked me to pay a 10% deposit (£20k).

One year on I decide to sell my exchanged contract as I no longer want to buy the flat. The flat is now worth £210k so I sell my contract for £21k (10%). This earns me a £1k profit on disposal of this contract.

Question:

Do I have to pay capital gains tax on the £1k assuming I have used up my tax free allowance.

Many thanks

K

@k_khan
- Whether you can sell prior to completion will depend upon the contract. Some developers will bar buyers from selling before completion, or place onerous restrictions on any sale which make it unviable.

- afaik, the 'profit' from flipping off-plan properties prior to completion is the gain in property value, so £10k in this example. I'm not an accountant but afaik the investors I've seen do this do have to account for CGT. 

Thanks K_S

So you think CGT would be payable on the £10k and not the £1?