Capital Gains Tax

drl1234

My wife and two of her friends have just bought two properties that they are going to "Do Up" and sell for a profit. They expect to make around £15000 on each one. What are their Capital Gains Tax Liabilities going to be ?

Pennywise

drl1234 wrote: »

My wife and two of her friends have just bought two properties that they are going to "Do Up" and sell for a profit. They expect to make around £15000 on each one. What are their Capital Gains Tax Liabilities going to be ?

First the good news. They won't pay any capital gains tax at all.

Second, the bad news. As they are buying them with the express purpose of renovation and sale, they are trading, and as such they need to register as being self employed and will be liable to pay income tax and national insurance on the profits they make. If they each make a profit of £50,000 and they already have jobs elsewhere, they could potentially be liable to 40% higher rate tax each, i.e. £20,000 each on a profit of £50,000, although probably less as some of the profit is likely to be taxed at basic rate, and then also liable to 8% NIC on £35,000 of the profits, i.e. another £2,800.

The way to avoid it is to keep the properties and rent them out as buy-to-lets. That way, you can indeed go for the capital gains tax treatment as you are keeping them as an investment. Then sell them on after the first one or two tenants and you get your capital gains tax reliefs and lower tax rate.