Best way to flip houses - tax

mcdevmc

Hi all

I'm thinking of buying one house at a time doing it up and flipping it.. then keep doing this to provide an income, enough to live on (I don't spend much😂).. maybe one a year.. so my question would be from a tax point of view what would be the best way to do this? It will just be buy one, sell it and so on... And it will be my only property and only income... any ideas ... Tia ☺️

Grumpy_chap

mcdevmc said:

Hi all

I'm thinking of buying one house at a time doing it up and flipping it.. then keep doing this to provide an income, enough to live on (I don't spend much😂).. maybe one a year.. so my question would be from a tax point of view what would be the best way to do this? It will just be buy one, sell it and so on... And it will be my only property and only income... any ideas ... Tia ☺️

Will the property you are doing up be your principal private residence while you are doing it up?

mcdevmc

Hi there

Thanks for replying.. it could be or not, whatevers best really.. I could live with my mum or at the property. Thanks again 

Jeremy535897

If you make the property your main residence throughout your ownership of it, any profit you make will be exempt from capital gains tax, and you are very unlikely to be liable to income tax either. There are two very useful extensions to that rule:

• the last 9 months of ownership will be treated as qualifying for the exemption, so long as the house has been your main residence at some time
• if for a period of up to 24 months from buying it, you do not occupy your new home (for example you live with your mother) when you acquire it because you’re unable to sell your old home, or you need to carry out refurbishment redecoration or alterations, you can treat up to the first 24 months as if the house had been your only or main residence in that period. The same treatment applies when you buy land to build a house on

If you buy the next property before selling the old one, you must elect which property is your main residence for the period you own both, within two years of buying the second property. So long as you sell the first property within 9 months of buying the new one, you elect for the second property to be your main residence from the date you bought it, even if you aren't living there for up to 24 months because of redecoration, refurbishment or alterations. But you must ensure you do live in each house for a meaningful period as your main residence. Just don't make a loss, as it won't be allowable for tax purposes.

mcdevmc

Brilliant thank you.. so if I did this once a year/1.5 years and kept moving and living there for approx 12 months that should be fine? I wouldn't own two at the same time at all.. it would be sell and then buy. Thanks again for all your help. Sarah

Jeremy535897

Yes, that should be fine, if you stick within the rules I set out earlier. You may find it a bit wearing not having a permanent base, and the most important thing of all is to buy the right property at the right price.

noitsnotme

If the intention is to buy and sell for a profit then it is a business and is likely that profit will be subject to income tax, even if you live in it.  You’ll probably get away with the first one or two, but maybe not more.  At least if it’s a business you can write off expenses for tax purposes.

”Firstly you may simply decide to live in the property you are renovating and claim PPR relief on the profit. Many individuals have done this but unfortunately HMRC (the tax man) is wise to this and where this happens on multiple occasions HMRC may look to disallow the PPR relief and tax the profit as a trade.”

https://www.friendandgrant.co.uk/blog/the-ten-most-common-tax-mistakes-made-by-property-developers/

Jeremy535897

I think the probability of HMRC treating someone doing modest work to properties and selling one every year or so after living in it as their main residence is extremely remote. Of course it is not helpful if you boast about what you do in the pub and describe it as "your business" where someone from HMRC happens to be sitting, or do anything else that creates evidence that you are a trader.

noitsnotme

At least the OP is now aware that it could be a possibility, no matter how remote and can plan accordingly.

Jeremy535897

That's why I said "you are very unlikely to be liable to income tax either". The artificial transactions in land rules are disapplied in cases where the property is genuinely used as a main residence, so HMRC has to show a genuine trade, and a sale every 18 months or so is not really evidence of that. HMRC has taken the odd high profile case, but usually in circumstances where there are huge development profits and the use of the property as a main residence is sketchy. I would view the comment in the link you referenced as over pessimistic.

noitsnotme

Absolutely, but good for the OP to have all the facts from the beginning.