CGT or Income Tax allowance????

andyquoys

Hi, can anyone help?

I am a self employed electrician and have filed self assement tax returns for the last few years.

My question is... last year my only work was renovating a house that i had bought to do up and sell (which did sell and i made a profit).
Now when filling out tax return and calculating tax owed, do i use my personal allowance for income tax and use property renovating as my business or can i use the higher allowance for CGT?????

Thanks in advance for any advice

TaxGeek

HMRC generally view this as trading, so income tax.

inquisitive3000

I can't see why you cannot use both allowances. Personal allowance is everyone entitled to; annual exemption amount (AEA) is because you invested a certain amount of money to buy the house, so you pay the Capital Gain Tax as well as claim the AEA back. I think you need to fill in both Self Assessment Form as well as Capital Gains Summary form (SA108) – you can ask the tax office to send one for you, or print off from the HMRC website.

CLAPTON

taxGeek is corrrect.. the HMRC view this as trading so you will pay income tax and not CGT.

inquisitive3000

On HMRC website it says:


When do I have to pay CGT?

You may have to pay CGT if, for example, you:

• sell, give away, exchange or otherwise dispose of (cease to own) an asset or part of an asset

http://www.hmrc.gov.uk/pensioners/capitalgainstax.htm#1

CLAPTON

lilyto3000 wrote: »

On HMRC website it says:


When do I have to pay CGT?

You may have to pay CGT if, for example, you:

• sell, give away, exchange or otherwise dispose of (cease to own) an asset or part of an asset

http://www.hmrc.gov.uk/pensioners/capitalgainstax.htm#1

I'm sure it does but buying a property for the purpose of doing it up and selling it counts as trade so income tax is applicable and not CGT. The OP can phone up the HMRC and ask.

terryw

CLAPTON wrote: »

I'm sure it does but buying a property for the purpose of doing it up and selling it counts as trade so income tax is applicable and not CGT. The OP can phone up the HMRC and ask.

As a one-off it could well be argued that this is not a trade and that CG applies.

Someone buys shares expecting to make a profit when they go up in value. Then sells the shares -this is hardly different to the house example, but CGT would be payable not IT.

In any case, the OP could have bought the house to do up with the intention of living there and then changed their mind.

Worth paying a fee to an accountant for a professional opinion.
Or there are a few retired Tax Inspectors who join in posts here. No doubt a one will come along shortly! I too would like a definite answer to this one.
terryw

TaxGeek

I think the point is that OP states he bought the house with the intention of doing it up and selling it at a profit. HMRC see this a trade. Had he bought it with the intention of doing it up then renting it out, that would more likely be considered an investment and thus liable to CGT. It is similar to the shares analogy, but the recent property boom means this is something HMRC see quite a lot and they consider it a trade. By all means seek professional advice, but I doubt they would tell you anything different.

Mikeyorks

If you read the OP :-

.....self employed ... last year my only work was renovating a house that i had bought to do up and sell

........ there is absolutely no doubt HMRC would regard this as profit from trade and therefore liable under IT.

terryw

Mikeyorks wrote: »

If you read the OP :-



........ there is absolutely no doubt HMRC would regard this as profit from trade and therefore liable under IT.

Thanks Mike and Taxgeek.

The Op then is in further bother if he has not informed the HMRC of starting a new business if he has not done so ?

I really would like some link to this view that a one -off doing up of a property is a trade rather than a capital gain. I cant find one .......perhaps someone can help.

many thanks

terryw

Mikeyorks

terryw wrote: »

The Op then is in further bother if he has not informed the HMRC of starting a new business if he has not done so ?

There you have me. But I suspect that HMRC would happily subsume it under his currently self-employed status? As merely a furtherance of his existing self-employed activities.