House Flip Advice - Main family residence

Cntxy

Hi All,

Six months ago, we sold our house for a significant amount of money and decided to move into a tiny home situated on a great plot/location. Our plan was always to build a large extension on this property. We've been living here for six months and are currently in the planning phase of the extension. Hopefully, we'll begin construction in the next 6–9 months.

In the meantime, we recently purchased a repossessed house at auction (in my husband's name) with the intention of renovating it over the next few months. The renovation will involve changes such as updating the kitchen and bathroom, knocking down walls, and more. My husband will be dedicating most of his time to this project, as it will effectively become his full-time job until the renovation/extension are completed.

Once the renovation is finished in this second house, we plan to move into this second house temporarily while the extension work on our primary property is underway. We estimate the extension will take about 12 months to complete, while the renovated second house will be our main residency.

After the extension is finished and we move back into our main property, we intend to sell the second house. We hope to make a profit of over £50K, as we purchased it at a very favourable price at auction.

I’m seeking advice on the best way to manage this house flip, particularly regarding its status as our main residence during this period. Should my husband change his main residence as soon as he begins renovating the second property? What "expenses" can we claim when we sell the house? Should we open a trading business?

Additionally, we’ve previously considered renting out the second property once we move back to our main house. Would this decision affect the taxes we’d have to pay on the sale?

Many thanks in advance for your advice!

Kind regards,

Keep_pedalling

As a married couple you can only have one main residence between you.

Cntxy

Keep_pedalling said:

As a married couple you can only have one main residence between you.

Many thanks. We will change our main residence to the renovated house while we do the extension (probably 12 months) and sell it as soon as we move back to the extended house.

Cntxy

What is our situation with capital gain tax?

sheramber

Did you pay the additional tax on purchasing a second house?

Cntxy

sheramber said:

Did you pay the additional tax on purchasing a second house?

We haven't completed yet (we have exchanged contracts though), completion is scheduled early January, but I would expect we will have to pay the second home corresponding stamp duty. Is this what you are referring to? We plan to put the title in my husband's name only.

silvercar

You will do very well out of the exemption given to properties that are being renovated, this allows such a property to be considered as your PPR even though you aren’t occupying it.

“Where there has been a delay in a taxpayer taking up residence in the property, the period of non-occupation between buying the property and moving in can, in certain circumstances, be treated as a period of occupation. This is subject to certain conditions and is limited to a 24 month period on the condition that no other person uses the property as their residence during that time. This applies only where the delay is due to construction, renovation, redecoration or alteration of the property, or because the taxpayer does not move in until they dispose of their previous residence.

Where the above conditions are met, the taxpayer is deemed to occupy the property from the date of acquisition. If the conditions above are not met, the gap between acquisition and moving in will be a period of absence which may restrict the amount of PPR relief available. “

mybestattempt

@Cntxy

Just my thoughts:

If the property your husband will complete on soon is sold after he renovates and you and he occupied it on a temporary basis, then HMRC might contend any profit on sale is trading income rather than a capital gain.

At the moment the intention is to renovate and sell for profit. Your husband will be the sole owner and intends the renovation of the property to be his full time job. Those factors, in my view, could point to "a venture in the nature of trade."

poseidon1

mybestattempt said:

@Cntxy

Just my thoughts:

If the property your husband will complete on soon is sold after he renovates and you and he occupied it on a temporary basis, then HMRC might contend any profit on sale is trading income rather than a capital gain.

At the moment the intention is to renovate and sell for profit. Your husband will be the sole owner and intends the renovation of the property to be his full time job. Those factors, in my view, could point to "a venture in the nature of trade."

Yes, this also struck me as ' a venture in the nature of trade' as defined in the income tax codes.

Grumpy_chap

Cntxy said:

we plan to move into this second house temporarily while the extension work on our primary property is underway. We estimate the extension will take about 12 months to complete, while the renovated second house will be our main residency.

After the extension is finished and we move back into our main property, we intend to sell the second house. 

AIUI, the second house will never have any qualifying period as your PPR because there is no intent at any time for it to become your PPR - no permanence to the short term period living there.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64455